equity line of credit

I have 350K equity in a home that is free and clear. Instead of getting a 30 year mortgage for a rehab/fixer-upper, would it be wiser to get an equity line of credit, pay cash for the house and the fix-up and pay everthing off after selling the house? I am looking for a 1st time investment property. I am in the planning stages.

Howdy Wannabe2:

The only drawback against using your home is if anything major goes wrong you could lose your home. You would get a better interest rate for sure and less fees. If you can get low rate bank financing on the rehab I would probably do that instead of the homestead. If you have to use hard money to get the rehab loan you may want to use your equity. In Texas you can only get 80% of the equity in a HELOC which is a good thing. You may want to consider only 50% just to be safe. Is there any seller financing or a loan to assume or do a sub2 on the rehab?

Ted what do you mean when you talk about getting a hard money loan?

Also don’t a lot of investors use “paper equity” or equity in one property to purchase another? Obviously this is riskier but the reward is great?

Howdy Jczimmy:

Hard money lenders loan about 70% loan to value and charge 12 to 14% interest plus 4 OR 5 points. Credit is usually not an issue. They are short term as well. They are a lot more expensive than bank loans but are faster and less hassle.

You could give a seller a lien against your house but I would prefer to use the sellers house as collateral. You hear about the paper equity stuff in books and courses but it is not all that common.

sir, how do I get an equity loan with a fico score as low as 520. I owe 145,000 on my home. It’s currently worth 180,000.

Howdy Odogwunna:

In Texas you could not borrow on that equity. You can only borrow 80% of your homes value and $144,000 is 80% of $180,000. Also a score of 520 is a bit low. You may be able to find a lender but the rate will be higher because of the lower scores. You may get some contact from some of the mortgage brokers that are members of this forum. You may also want to place an ad in the ad section. Sorry I am not much help.


You might want to think about split funding in which you get the the owner to agree to get some of the profit at a later date so that it would give you more time to fix and flip the property