Home Equity Loan Questions

[Alexander Ransom]

I am looking for my first deal and considering using a home equity loan or home equity line of credit to pay for the downpayment and/or slight remodel on a rental property. Can anyone easily explain the difference in the two? Also, what are some things to watch out for? I have a wife and a 4 month old baby in our current home which we bought 3 years ago.

[Bob Okenwa]

HELOAN is a one-time event installment loan and the money is given in one lump sum. Payment is immediate regardless if you use the funds or not. The terms are fixed and so is the rate. If you pay it off and decide you need to use the money again, you have to go through underwriting all over and have your credit checked, assets checked, etc.

HELOC is like a huge credit card as it is a revolving loan like a CC. HELOC's usually last for 10 years before you go into an amortizing loan. This line of credit has an adjustable rate so be careful of that. Limits can be cut at any time by the bank also.

If you plan to use the money more than once, then I'd suggest the HELOC as it's flexibility makes it much more attractive to investors who typically ebb and flow with money coming in and going out.