Refinancing could be the way out

[Remone R.]

so I'm trying to understand the different types of refinancing and what would be best in my position. Here's the lowdown: I bought a 4 unit for 500k as owner occupied FHA 3.5% down and my current principal is 480k. As of now zillow has my property valued around 550k and with the given market I'll assume that it's in this range. Looking at comparable sales of like properties they have sold at or above the 600k range. My question is this...if let's say around early spring (12 months owning the property) its appraised at 600k and my mortgage balance is 477k which leaves 123k equity. If I'm looking to reinvest in another property using the equity how would the cash out refinance wk with these given numbers as owner occupied assuming 80% LTV? In other words how much would I be allowed to take out?

Secondly with these given numbers and my intentions to reinvest which method would work better; cash out, HELOC or LOC?

Lastly if I was only able to do a 80% LTV cash out could I also do a HELOC for %10 ltv to make a full %90? Would this be a wise move

[Mike H.]

Wait. If you get a heloc and you move out, the bank would be able to close out the heloc if they wanted to. But you could pull out the money before you move and then the best they could do would be to close out the HELOC. They could not force you to repay the money you already took out.

Obviously, you would be paying the payments on what you took out. But there's no way the bank could force you to pay off the HELOC just because you moved out.

To me, the HELOC is your best option. There are some banks that will do 90% LTV on HELOCs. You are far more likely to get a bank to do a HELOC up to 90% then you are to find a bank willing to give you a LOC of 60k. There are some banks starting to do even more than 90% too.......

I've been doing this for 10 years and I have yet to find a bank willing to give me a LOC. And I own 63 rental properties, have zero negatives on my credit, and have a w2 job paying 6 figures. But they will do rental loans all day long (I have loans with over 8 local banks).

So stick with the heloc. But first, I would recommend a refi because you could knock out your PMI. Then do the heloc for the additional 10%.

Then buy your next one with another low money down loan (fannie mae has 3% down loans too I think). And keep it up as long as you can (i.e. until your 10 conventional spots run out).

One thing I might add though is that you might have to shop your heloc to different loans as you continue buying. I doubt the same bank is going to do more than 1 or 2 heloc's once they see that you're going to be moving every year or two. :-)

One last item to keep in mind too. Most banks have the option to convert a HELOC into a HEL (home equity loan). Basically, the difference is a HELOC is typically interest only payments with a little bit lower rate. The home equity loan is simply converted to a commercial loan amortized over 20 years.

The advantage to a HEL is that the credit agencies may view your heloc as a maxed out credit card and it may affect your credit score. A home equity loan, on the other hand, can be treated as a mortgage (although I believe the size of the loan makes a difference on how its categorized).

So keep that in mind as well. That would apply to both a heloc and an loc.

But I still say that you will have a much more difficult time getting a line of credit than you will getting a heloc. And the interest for a heloc is deductible. The interest for a personal line of credit is not.