Should i use a HELOC or home equity loan? please help

[Evan O'connor]

I own a house completely paid off and I wanna use the equity to fund my next property. I'm not sure whether to use a HELOC, home equity loan, or a cash out refinance. I thought a HELOC would be the best path but I was told from a few who don't invest in rental properties very much that a loan is better. I would love direct advice from a professional or anyone who has experience with this.

[Chris Teti]

Hi Evan,

For how you want to use it, I recommend a HELOC. Like John said, it's there when you need it but not paying interest on it if you are not using it. If you get a loan, you are paying interest from day one, even if you are not using the $$. Then over time your available capital is dwindling away. A cash out refi, you're paying interest over the whole term of the loan even if you never use the $$ for an investment property.

I also prefer a business line of credit as my first option and my HELOC as my backup plan. The business line of credit will be pretty comparable ratewise, but it won't report to your personal credit report so no impact on your DTI like a HELOC. Then you still have your HELOC as a safety net if you need it.

Good luck!