HELOC or cash out refi my residence and buying another

[Tori Prophet]

I've been researching this and would like some feedback about which direction is smartest. I hope it's ok to ask since it's not about an investment property, but about our residence.

We live in Texas and want to upgrade our home to sell and buy another for our growing family. We only need about $10-15K to do make a few repairs and upgrade some things. I was first advised by an investor friend to seek a cash out refi and pay it off when we sell, then another investor I met here on BP said no, do a HELOC because the fees would be so much less and we can pay it off too when we sell.

So now, Royal United Mortgage has quoted me a new mortgage amount of $977/month and taking $15K cash out for a term of 25 years, or $1215/month taking out $30K for a loan term of 15 years. Fees are rolled into the loan and my only out of pocket expense would be my appraisal, about $450. They know our intent is to sell asap.

My personal bank has preapproved me for a HELOC up to about $30-38K and said the only fee would also be the appraisal, from $200-500. Variable interest rate at 4.75%, prime +50, capped at around 18-25%.

What are the advantages of one over the other? Which option would you take? What other information do I need to consider? Would the HELOC put me in a better position to get an investment property later (thinking sub30K) or help me get the new home? I like that with the cash out refi, I would not have another payment on top of my mortgage.

Thank you for any wisdom and insight you are able to give!

[Timothy Church]

@Tori Prophet I think another thing to consider is how long it will take to do repairs and what the average days on market is for comp properties. The cash our refi is going to cost more in points charged and origination fees than the HELOC. If you are going to be able to do all necessary repairs and sell quickly the HELOC would be a good choice. However if the market is slow and your stuck paying your mortgage plus the HELOC with it's high interest rate you might want to consider the refi.

The other thing to look into is how much equity you will be freeing up through the sale of your home. One thing I did after selling a personal residence was to put 20% down on an investment property while putting 5% down on a new primary residence. This was able to get one of my first vacation rentals down here on the island while also giving me a place to live. The cashflow from the investment easily covered the difference in my personal mortgage (PMI plus increase in loan amount). It does leverage you a bit more but if you are in a position that you are comfortable with that it can me a big jump!