HELOC vs Construction Loan to finance rehab.

[Mimi J.]

Hi everyone, I am fairly new to bigger pockets and most definitely a novice with REI. I have been so engrossed with this website and the wealth of knowledge that is freely shared. I happened to stumble across this site when searching for builders risk insurance and have been so addicted. What I didn't think was possible regarding REI is possible and even more...opportunities are not limited. It's a matter of knowing. I've read, and read, listened to a number of podcast and am affirmed each time.

In any case, I own a property free and clear with my aunt. This has been her only home and is in dire need of major renovations and I have decided to gut. Given its prime location and ability to make a 2 BR basement rental unit...this is a win win. I have met with contractors, architect and found a lender for construction loan. I was of the understanding that you could not take out a HELOC if it wasn't your primary residence. I went to the bank today for another transaction and posed the question after reading a number of post. I was informed that I could take out a HELOC and it not be my primary resident.

With the construction loan, funds are closely monitored and before a draw is released it must pass inspection and would protect me. I selected a general contractor and am very impressed with the jobs he has completed. He works with a local investor who flips properties in the DC area. My only concern with him is that he is slow to respond phone calls and I had to put my foot down. Would you advise I take out the HELOC or construction loan? I am aware that the construction loan would later be refinanced.

Thank you!

[Justin Thompson]

Just my take on it... I'd do a construction loan so that the general contractor doesn't bolt with your money because you have to submit draws. That protects you being new and keep money somewhat safe. HELOC all the money will be there for the taking of given the chance. Not saying they will but I don't like to give someone a chance to take advantage of me if I can prevent it. Also, if the house is in need of that many things, it won't pass an appraisal which a HELOC requires. I do not believe a HELOC always a subject to appraisal but I am not 100% sure on that.