Cash out refi or HELOC on primary residence

[Cayton Green]

Hello,

I'm trying to purchase my first rental buy and hold property and need a little bit of advice. I'm debating if I should take out a HELOC or do a cash out refinance on my primary residence to use for a down payment/rehab costs on an investment property. According to zillow, my primary residence is worth about 218K and I have a balance of 150K. I'm in Texas and I believe the highest LTV for a HELOC is 80% which leaves me about 24k i can utilize (i have about 20K in other savings I'd be using as well). So here are my options and my thought process behind each one:

1. Apply for a HELOC: Since i don't have an investment property targeted now, I like the idea of having the HELOC in my back pocket until an opportunity presents itself. Also, the low costs associated with opening up a HELOC.

2. Do cash out refinance: With interest rates very low at the moment, I've thought maybe i can refinance out of my FHA loan (3.75%), get rid of the PMI, and possibly lower my payment while also getting cash for my first rental. I eventually, maybe a year after buying my first rental, want to buy another property as my primary residence and use my current primary as my 2nd rental. I'd like to eventually get rid of the PMI so the property would cash flow better.

Soon I will reach out to some lenders to have them run the numbers for me, but wanted to reach out to see if anybody had any advice or suggestions on which route to choose? My credit is 800+ so i think I'd be able to get a better interest rate than 3.75, however it's my understanding cash out refinance's have higher rates than a regular refinance. Any help or suggestions would be greatly appreciated!

[Danny Webber]

@Jody Sperling  agree with Jody plus

I would not touch that little of equity in a house even at low interest rates. You may want to refi anyway to a 10-15 yr note and then turn that into a rental with a massive principle reduction per year for 3-5 years then refi into a 30yr note for max cash flow or just ride out the short term amortization. 

Lots of strategies and ways you can go. What fits your mid/longterm goals/strategy?