Cash-Out Refinance..... Start paying Interest immediately ?

Question

Just had a quick question please, regarding Cash-Out refis.

1. Do you get the Amount of Cash from the Refi. sent to you , via a Check ?

2. Do you start paying Interest as soon as they Lender writes you the Check ?

3. So with a Cash-Out refi.  vs a  HELOC ...... with a HELOC, you only pay on the Amount that you " Take Out "  from the Total that you have at your disposal to use ?

4. Are there any Benefits to doing a Cash-Out Refi. vs a HELOC ?

5.  I am wanting to have Immediate access to the $ ( whether I go with a Refi or a HELOC ), as I will be using this Money to pay in Cash for an Investment property that I am Looking to Purchase.

So would one of these be more benificial to me than the other and why please ?

Thanks much

Michael Dunn · Answer

Kevin Harrison,

Thank you for your reply

A quick Breakdown n my current situation and what I'm looking to do with the $ from either a Cash-Out Refi. or a HELOC .......

1. I have $40,000 in Equity in my Primary ( which is currently a FHA loan )

Given my DTI  and Bills, I'm likely going to only qualify for a $27,000 ish  Loan/Refi. ( Even though with using my VA loan for the Refi. I could get upwards of $30,000 .... my Bills every month and the Max DTI of 45%  , are only going to allow me to get roughly $27,000

So given this, I only have $27,000 to play with

The Property I am looking to buy, needs $15,000 ( Materials Only ) in upgrades/Repairs, And I will be doing almost all of the Work ( I''m a Sub-Contractor by trade )

So Unless I can get this Property for $15,000 ( All CASH offer to the Seller ), I won't have any money left over for any Materials , BUT I'd have a Property paid for , that would Have Roughly $$80,000 of Equity in it , And it also has 2 Living Units  ( a 400 sqft. unit that has a bathroom and kitchen , and then the Main house that is 2 bed , 1 bath and about 1500 sqft. )

This property is Very Distressed state ( Which is good for me ) , soooo I may be able to get it for $30,000 as an ALL CASH offer to the Owner(s) ...... This $30,000 would come from the $27,000 I'd et from the Refi. or HELOC , as well as $3,000 I have saved back in Cash.

a $30,000 offer price, is much more Likely to get accepted vs a $15,00 Offer, but with the $30,000 , there's no $ Left Over to do ANY Repair work

I really Don't want to wait and try and save up X amount of Dollars to do the repairs, and have someone come over top of me and get this property.

I'd rather Buy it, and little by little Fix it , Until both Units are Rent ready, then rent them both out

A $30,000 Refi. will only add roughly $150 to my current House Note.... So not bad at all, to have $80,000 in Equity ( When fixed up )

Your thoughts Please

And thanks so much for your help

Kevin Harrison · Answer

With a refinance you are basically rolling what you currently owe on your mortgage plus what ever you take out from the equity into a new mortgage for a higher amount than what you currently owe. You will have to make monthly payments on this since it is a mortgage and you will be wired whatever you took out above you equity in one lump sum.

With a HELOC it is exactly what it says. It is a line of credit that you only have to pay interest on what you use similar to a credit card. This allows you to have access to a huge amount of money but not have any payments on it until you use it. This is great for things like rehabs etc where the final cost is not certain until the job is done. If you are buying a home that needs no rehab and you know you fixed cost then a 30 yr mortgage is preferable since it will give you longer amortization. HELOCs tend to be interest only for a period of less than 10 years then either have a pay back period or a lump sum due.

Don't forget that you can use both of these to your advantage by buying and rehabbing with a HELOC then getting a fixed mortgage on it later.