Line of credit vs Mortgage ?

[Joseph Tarallo]

I am looking to buy a investment property in NJ. I am trying to decide if I should get a loan from a bank as a conventional mortgage with 25% down from a bank or should I use my other investment properties line of credit to buy the house cash?

Is there other benefits besides being a cash buyer by using my homes equity?

What are the pros and cons of doing so?

Will I save a lot more money by using my homes equity ?

[Aaron Chapman]

My perspective from a lender as well as the investor point of view is to use the Line of Credit for the 25% down and finance the 75% with a 30 year fixed. Being that it is a fixed rate in a historically low rate environment you will be better off in the long run when the rates decide to ratchet up on the LOC (which they will eventually). In addition, this will give you more purchasing power to expand into buying more properties and increasing your monthly cashflow.

Using the property cashflow to pay down the Line of credit will open you up to more purchasing capability and dropping your monthly credit obligations as its balance decreases. I have seen benefits to paying cash in the sense it gives you a better chance at getting an accepted offer. Additionally there is an option regarding refinancing in the first 6 months of ownership if paying cash where it is possible to finance the entire purchase price if the property appraises high enough using the FNMA "Delayed Financing Option". This is a very powerful option. It is a matter of picking the right property.