Refinancing to pull out equity for down payment+rehab cost

[Account Closed]

Hi Everyone,

I'm not sure if I picked the right forum but here is my scenario and hopefully someone can assist us: Me and my wife are trying to refinance our main property in order to cash out $50,000 from our equity. 50K is about 30-40% of the entire equity so we are not totally maxing out the equity available, just FYI. This amount is the amount we will be using as a combined down payment and rehab cost for the 1st property we are buying. We are given a 4.375% rate for 30 years. I have a feeling that this rate will not go down anymore. Should we lock on the 4.375% rate or wait for it to go down?

Thanks in advance.

Earl Melendres

[Justin Thompson]

Earl,

My thoughts would be to look into a home equity line of credit (HELOIC). Have it appraised and see what the bank will issue on the remaining equity. Banks typically will do a HELOC up to 80% of the appraised value however, I know a lender that will do 100% HELOC on your personal residence.

If you intend to buy and hold you could take out the HELOC, use the money to purchase and rehab your investment property with all cash. Once the investment is up and running, refi that property to pay off the HELOC. There is a line of credit option or also a home equity loan product available. A HELOC has interest only payment option as well. So your payments on the money taken out would be minimal. Then after you have paid back the money taken out, you can continue to use the HELOC for the purchase of other properties. Qualifying for a HELOC and the "loan/application" process is smooth and simple. Also, a HELOC has different debt to income ratios. Also, if you refi there is probably going to be closing costs and fees associated with that. Typically a HELOC has no fees as the bank covers the appraisal and it is considered a consumer product. So the underwriting is different as well.

My vote would be take out a line of credit and use that to expand your portfolio. Just my thoughts though!