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Posts: 1
Registered: ‎09-12-2007
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Effect of Credit - HELOC or Second Mortgage

When I bought my condo I did an 80/20 split over 2  30-yr fixed mortgages.  Since then my home has appreciated and I would like to use my equity/appreciation to get a lump sum cash loan that I can use to invest in another property with a friend (we are flipping a house - should take 12 months). After a year I should have a lum sum I can pay back the additional $$ that I took out on the loan.
Because I already have 2 mortgages I need to refinance the 2nd mortgage to get the cash loan.  can you please advise though which is better for my credit score - refinancing the 30-yr second mortgage or refinancing for a home equity line of credit.  I thought I heard that the HELOC is not as good since it can be considered revloving credit....
I have great credit score right now and I feel comfortable with sticking with another 30-yr mortgage, but just want to make sure I am making the right choice in terms of my credit score.
Valued Contributor
Posts: 2,385
Registered: ‎09-10-2007
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Re: Effect of Credit - HELOC or Second Mortgage

I would recommend against gambling your home on an investment property,  In this market you have no clue as to when the rehab property will sell - it could be days from the time you place it for sale or a year.  In the meantime you are carrying a large mortgage with little or no equity in your home.
Besides, if you take the cash from the investment property you will have to pay taxes on it (talk with a tax specialist that deals with Starkers).  Now, you can defer the tax if you buy another investment property with your same friend and follow these rules: buy up, mortgage up and spend all the cash.
Oh, and to qualify for a starker you must hold for at least ONE tax return at a minimum, but better to be safe and hold for 1 year and 1 day to qual.  Attorney differ on this and there is no firm IRS ruling.
Starkers are a little known (by the general public) avenue to defer taxes - and you can convert an investment property to personal use/primary residence (must stay there 5 years to qual for the250/500K exemption).
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