Home equaty loan to buy rental property

[Hovhannes Hunanyan]

What would you do if you have home equaty in your primary house and want to use it to buy rental property for investment reason? How does equaty loan work today (for example if my home is worth $600,000 and I owe only $200,000) ?

[Geordy Rostad]

@Hovhannes Hunanyan

I'd say a HELOC is probably a better way to go than a cash out refi because with the cash out, you are always paying for having the money out. With the HELOC, you can pay it back and reborrow it anytime you want. It gives you more flexibility. Keep in mind, you DO have to qualify for the full amount of the payment. If you owe $200k and you want to access the other $400k with a HELOC, you'll need to qualify for the full $200k(full amort)+$400k(interest-only) payment based on your debt to income ratio. I ran into this problem myself. I have tons of equity but they only allowed me access to a portion of it. They have no control over what you spend the money on. You could go buy an income property for $400k and EASILY make the payment or you could buy a Yacht and go broke. That's the beauty of a HELOC, the choice is yours entirely.

I would NOT suggest using the HELOC as permanent financing for a rental. Use it to make the purchase or use it for the down payment but the get a proper mortgage on the rental after you have stabilized it. This will free up your HELOC to go do your next project. HELOC rates are not permanently fixed. They are typically only fixed for 1-year or so.

I'd suggest