HELOC or cash out?

11 Replies

Hows it going BP?

I know there has been touched upon before but id like some advice for my specific situation.

My current primary residence has about 100k in equity in it based upon my loan amount vs city appraisal. Local comps are showing about 80k in equity if it were needed to be reappraised.

My goal.

Im going to partner with a friend who doesnt current have any loans to buy a house with intentions to flip. He covers down payment in financing.

Im going to be project manager/ pay for the cost of rehab.

My question.

What is the best way for me to use the equity i have in my primary residence to pay for the rehab. HELOC or Cash- out.. Or if there is any other options entirely.

I look forward to hearing some expert advice

@Grant Smith I think you need to talk to a loan officer who can give you options on a conventional loan to replace that FHA loan. The FHA loan, while the rate might be low, is "high cost" because of the PMI.

You may run into seasoning problems too if you just bought in SEP last year? Cash out refi may not be an option? Before I guess, I'm going to point you back to a loan officer who can answer those questions. If you can't cash out refi now, you want to find out when you can or if the HELOC is an option?

@Robert Leonard Thank you for your advice. I have that on my to do this week to get in touch with a loan officer and would definitely want to look at refinancing to get ride of the PMI

I didn't see all the details (FHA loan, date of loan, percentage of equity, etc), so its hard to answer. In general, I would prefer cash out over HELOC, especially if you already know where you are going to spend the money based on typically better rate than HELOC.

Sorry i thought i described it all but ill just list it for easy reference.

FHA Loan

Jan 14'

Loan Amount: 79,000

City Assess: 179,000

Comparable Comps Average: 135,000

70-80% LTV

I know there is a seasoning for cash-out most of the time(have heard some local banks might not have a seasoning period) and im unsure for a HELOC.

Another benefit i could see with a refi is that i could get out of paying the PMI if my LTV was >75%. Hope this helps

In general, for a flip costs I'd go with the Heloc since you don't need the money for very long. It's also probably much cheaper closing costs than a refi, and you'll only pay for it during the times you are using it. You can use it again for the next one, but it won't cost you anything in between. Around here the credit unions are offering some good deals- like 3.5% interest, 80% LTV with no closing costs. They're going as high as 90%, but that's a more expensive product.

The PMI issue might make a difference in your decision though, you'd have to get some quotes and do the math

Heloc makes way more sense. The cost of a refi is substantial. With a heloc, the bank will usually pay for the appraisal and the closing costs. Also, are you sure you are paying PMI? I doubt you are if you put 20 percent down. PMI only lasts until you have 78 percent ltv based on purchase price (not appraised value) or 5 years in, whichever happens later.

Also, with a heloc you can pay it back with the proceeds from the sale until you need it again. You only pay for it when you are using it and you don't have to keep reapplying for it like you would with a refi. It's just there waiting for your next flip while you are finding the next deal (and you're not playin interest I it).

@Mark Bookhagen Thank you for the response, was exactly what i was looking for. Currently though i am paying PMI becuase it was an FHA 3.5% down so purchase price was 80.5k. PMI is like 70 bucks a month which i mean isnt killing me as im renting the other rooms out and actually living mortgage free.

But what you said makes sense and since im only gonna be using it for cost of rehab on my next project, paying only interest on what i use.. i think i will have to agree with you. and like @Jean Bolger said, i have an account with a local credit union who is infact offering a very similar deal on HELOC's...

Thanks again for the responses guys!

I am so glad Grant has posted this question. I have a similar situation where I own my home free and clear. It is worth around $250,000. I am thinking about flipping homes next year after I educate myself on the process. I am thinking about doing 1 to 2 flips a year to supplement my income. Is HELOC the best or cheapest way to fund this project? Other than the interest rate, are there any large fees when it comes to getting a HELOC? Thanks!

@Grant Smith @Mark Bookhagen  

Hey, How did it go ? Im in a similar position as you were and would like to know more about a HELOC.

Is it for only as much equity you have in your home ? Like a huge credit card ? You use what you need only ? What Kind of interest rates ? If I used $30K, how big of a payment  ?

Great post, thanks

@Grant Smith

im having a lot of issues with the @whovever thing. is it buggy ? or is it me ?