HELOC/Home equity loan vs Cash out refinance on Primary Residence

[Josephine S.]

Happy Memorial Day BP community, I hope everyone is enjoying this beautiful day, Thank you to all military and veterans for serving. In regards to this forum I would like to get feedback from anyone and everyone who might have some advice for me. My husband and I have been debating on selling our primary residence, we purchased the property in 2013 with a FHA loan with a 4% interest rate. We owe 79k on our mortgage and comparables are at 130-160k within a 2 mile radius. We've been contemplating on doing a Cash refinance or Heloc to use the equity in our home for a rehab. My questions are, Do we get the home appraised before using any of these strategies? Is there any other way to use OPM to rehab our home?(We know the home needs repairs plumbing, electrical and interior updates.) Should we do a Heloc, Home equity loan, or cash refinance? We have read blogs and searched the internet for advice and would like to ask our fellow investors. Thank you to all! Josephine

[Andrew Postell]

@Josephine S. lots of good questions here and this is really specific here in Texas so let me answer these questions one at a time:

• Do we get the home appraised before any of these strategies? - Yes, if you are doing a cash out loan on your primary home you will be required to have an appraisal 95% of the time. The cash out loan will be limited to 80% of the home value. So if you owe $79k then you would receive cash out around $20k. If your home was worth $160k then your cash out amount would be $42k (or so). There are certainly different reasons to use a HELOC vs. a Cash Out loan....it would depend on what you were using the money for and how long you were planning on keeping the home.
• Is there any other way to use OPM to rehab our home? - Sorry, not too familiar with the "OPM" term but yes, there are both FHA and Conventional Rehab loans available for you to use. You don't have to use a cash out loan to renovate your home. If you were to keep your home for a long period of time this might be the right strategy in Texas since a cash out loan would carry certain penalties (as in you could not get a HELOC after getting a cash out loan)

I would certainly recommend to speak with a local Texas lender on this.  Lenders who do not have a physical branch in Texas do not have the ability to write cash out loans here and they can be a little tricky if someone is not accustom to writing them.  Feel free to ask more questions if you need.  Thanks!