Buying and refi using a HELOC

[Michael Bland]

Hi, I'm interested in buying my next property but looking to use a HELOC to buy the property and then refinance to pay back the HELOC. Question, when you refi do you still have to have the 20% cash you typically need through a standard mortgage. I'm really unclear on how the refi piece works when you already technically own the home through the HELOC. Anyone done this before that has some information I would greatly appreciate it.

[Luke Stewart]

Since the heloc is on a separate property it wont be tied to the new property in any way, so you are correct that you will have 20% in equity immediately upon closing. You will just have to pay back the HELOC. That being said, are you looking to add value to the property? You didn't mention if you're looking to increase value prior to refinancing, BRRR method. Assuming you are remodeling, the biggest hurdle you could hit is the ARV in todays market. With markets dropping you could get sandwiched between prices/rates today and prices/rates in 6 months after your rehab. Just something to be careful with.

End of the day, the equity required on refinancing will be up to the lender who is refinancing your property, if its an investment property they typically require 25%, but depending on your credit some lenders could require less. I am no expert in this topic but this is the way I understand it.