Conventional Mortgage vs. HELOC

[Michal Sypolka]

Hello All,

I'm looking to purchase my first rental property outside of Philadelphia for around $100k - $150k. I'm wondering what financing works best for this. I have about $90k in equity in my current property. So should I take a conventional mortgage or HELOC and use my equity or any other financing? I appreciate your help.

[Allende Hernandez]

That will depend on may things. Condition of the property you want to purchase is one of them, also the purpose of the deal, in your case you mention is a buy and hold.

If the property is in bad shape it may not qualify to get a loan so having a HELOC available will work for you the best, you can then refinance it with a conventional loan after you repair it. Having a HELOC available is also like having cash, so you could have some leverage at the time of placing an offer against those that are financed. It is true though that you will have closing cost associated but there are many lenders that don't have CC on refis.

There are other scenarios that would lean the decision one way or another.

If yo have that equity available and unused, I would suggest you to get the HELOC regardless, you don't pay for it unless you use it and is right there for you to grab at a great rate if you need it.

Hope it helps and Happy Investing!