HELOC or CASH OUT REFI

[Terry Harris]

I've been recently debating what to do as I finish up the renovations of my home. I recently bought my primary home (which will be a house hacking rental property) for $175,000. My ARV for this home should range from $245,000 - $260,000. Whether I do a cash out refinance or a HELOC, I do plan on putting the money into a secondary investment property. My question is what would I be better off obtaining, a HELOC or CASH OUT REFI. I have some time before I get into this so would just like to hear you guys thoughts and/or considerations. Thank you.

[Jeff Copeland]

One factor in your decision is the rate and term on your existing first mortgage. If the rate/terms on your existing mortgage are competitive, a HELOC certainly gives you more flexibility, and, in some cases, a higher LTV (some banks will go 85-90% LTV on a HELOC for a primary residence). On that note, you might not want to mention to your lender that you intend to move out and convert it to a rental...that would be a major red flag in terms of getting a HELOC.

Another big advantage of the HELOC is you only pay if you use the funds, opposed to a cash out refi where you'll be making payments whether you've deployed the capital or not.