Hey! I'm also a rookie, but I was looking into the same thing a few months back. We have equity in our current residence and wanted to use a HELOC to fund our next rental property purchase. We didn't want a cash-out refinance because we got such a good interest rate in 2020.
I recommend looking into the difference between a HELOC and Home Equity loan and deciding which better fits your needs. HELOCs work more like a credit card (to some degree), and HE loans are more like traditional loans. Ultimately, we decided to get a HELOC—whether or not we end up using it to finance our next property, we now have access to that cash if we need it! (With a HELOC, you only pay interest on what you use.)
A few more things to think about:
-Definitely shop around for good rates. You would be surprised by how much it can vary.
-Lenders don't typically like you using a HELOC to finance another property; they want you to use a home's equity to improve that same home. I don't think it would stop them from lending to you altogether, but something to keep in mind.
-A HELOC is a temporary solution, and you need to make sure you can pay off the balance once the repayment period starts (typically after 10 years). We decided that in the grand scheme, we hope to have multiple properties by then and should have no issue refinancing something to pay it off—but make sure your long-term needs and goals fit this concept!
-Learn about the HELOC payment terms/amounts and work that into your deal analysis like any other expense to ensure the numbers work. (Example, if you use you HELOC for a down payment, that means you're paying $X in interest every month during the draw period. Make sure that $X amount doesn't put your cash flow in the negative.)
From one rookie to another, I hope this helps!
