Creative Financing-HELOC and Cash Out Refi

[Ryan Fell]

Apologies if this has been asked before, please just point me in the direction of that post if so.

Looking for creative ways to get a good chunk of cash for first property.

We have the worst house on a good street. Houses have sold recently from 500k-950K, our mortgage was for 350k and we have about 90k in equity currently.

Does it make sense to:

1. Take out a HELOC and upgrade our house

2. Do a cash-out refinance on the original mortgage after improvements

3. Pay off the HELOC and use the remaining cash for first property?

I may be way off base about how the HELOC even works and how to pay it back

Thanks,

[Kerry Baird]

@Ryan Fell

No, it is a bit more complex than that.  These are two different liens and two different lenders, in most cases.  Mortgages go into a position depending on when they were recorded.  Lenders want to (expect to) be in first position, which is the strongest position in a foreclosure situation.  Each bank would like its investment back, in the case of a foreclosure.  Second lien holders may get wiped out should it come to a place where the first forecloses; the first lien position is the strongest.  

Typically, the largest mortgage is recorded in first position, and a line of credit or a second mortgage would go in second position. The new mortgage must be in first position at closing. They will insist that there is no other encumbrance ahead of theirs. My lender, when I was in this situation, insisted that we close the second, the HELOC, with no option to ask the second to be behind the first.

...I used to work the pre-foreclosure world and would offer to pay a small amount to a second lien holder.  They could get something from me in exchange for releasing their lien, vs being taking the chance of being wiped out at auction.