As opposed to the one-time, lump sum payment received through a home equity loan, HELOCs, or home equity lines of credit, function similarly to a credit card, as they allow you to access and utilize the equity as you choose – up to a certain limit and within a certain time frame. Although HELOCs can offer more flexibility than home equity loans, they also come with higher closing costs and variable interest rates, which may mean paying more over time. Rocket Mortgage does not offer HELOCs. Another option to consider is a cash-out refinance, which allows you to take on a larger mortgage in exchange for accessing equity in your home. Because it’s a form of refinancing and not a second mortgage, a cash-out refinance doesn’t add to your monthly payment and instead extends the length of the original loan.To fund a property purchase, should I get a lump sum home equity loan, HELOC or a cash-out refinance?
There’s a lot to consider when choosing between a HELOC and a cash-out refinance, but if you’re planning to use your money as a lump sum as you would with a down payment, a cash-out refinance or home equity loan will probably make more sense.
When can I sell my house after I take out a home equity loan?
There’s no set time limit for how soon you can sell your house after taking out a home equity loan. However, in any mortgage transaction, paying off liens is necessary to sell the property. This is due to the fact that your home is held as collateral on the loan, but it doesn’t mean you have to wait to sell.
If you choose to sell your house while still making payments toward your primary mortgage and home equity loan, you will be able to pay off these liens from the home sale’s proceeds. For example, if you sell your home for $350,000 while owing $150,000 on your mortgage and $50,000 on your home equity loan, that money due will be deducted from your home’s sale, leaving you with $150,000 in profits.
Will a home equity loan put my mortgage underwater?
An underwater mortgage is a home loan with a higher principal than the home is worth. This typically occurs when a property’s value falls while the homeowner is still repaying the original balance of the loan. Although it’s not likely that a home equity loan will directly lead to an underwater mortgage, you will be at a higher risk due to owing more on the property.
What other investment property or second home property financing options are available?
Alternate forms of financing for purchasing a second home include:
- Private money lenders
- Peer-to-peer lending
- Self-directed IRAs
