Refinance Cash Out or HELOC

[Chan K.]

Hello BP,

I have a question:

I own a single family now, but in the process of closing on another single family that I will be moving into. 

Can I take out home equity or refinance cash out as primary residence on the old single family home?

If I can, should I do HELOC or refinance cash out?

Thank you

[Andrew Postell]

@Chan K. very sorry for any confusion here but in banking terms a HELOC is designed for your primary home. A LOC (Line of Credit) is designed for other purposes...including investment properties. And even I just fell into the trap of just answering your question rather than trying to figure out something that fit. So, when you call a bank, ask if they do LOCs on investment properties first. If you ask if they do HELOCs on investment properties their default answer might just be "no". Sometimes HELOCs are written out of the "residential" department and LOCs out of the "commercial" department. And sometimes the two departments don't talk to one another. So if you call up a bank and ask the general operator/greeter for HELOC on investment properties, they might transfer you to the residential department because they don't know the difference. And the residential deparment may not know that the commercial division will write something like this. As mentioned above, it is difficult to find lenders that write LOCs on investment properties so if you call with that strategy it will help get you to the right department to get the right answer. The bank STILL may not write them...but your success rate will be higher when you call around.

So just to clarify, if you apply for a HELOC on your primary home and plan on not occupying that property any more, then you will be declined for that product. If you apply for a LOC on the property you are vacating you would be approved (assuming everything else is ok). In general, LOC rates are about 1%-2% higher than a HELOC. And same type of concept, you won't be able to pull out as much cash with a LOC as with a HELOC. I hope this helps clarify. Thanks!