using home equity or HELOC as a down payment?
Member since 2023 · 124 posts · 132 votes
does anyone have any experience with using their current homes equity for down payment on another home? I have a lot of equity on my current home and was thinking of taking some out in the form of a HELOC as a down payment. based on all my research it seems like a useful tool. I have over 200k in equity and I wouldn't need more than 50k for a downpayment. any advise on this?
You won't be able to tap into all of that home equity, but doesn't sound like you need it anyway.
The bank will probably lend ~80% CLTV. Meaning you take 80% of your home value, then subtract out your first mortgage, and that's about what they'd give you for a HELOC. Depending on loan size, credit score, and other factors this CTLV might be limited to 75% or even 70%.
I think it's a good plan to leverage your homes equity to buy another deal. But the challenge will be finding something where the numbers make sense because what you will be doing is 100% financing on that investment property (you'll have your 1st mortgage on that property, then the HELOC is indirectly debt on that investment property). Plus you'll be 100% financing with expensive debt. Both your 1st mortgage and your HELOC will come with high rates.
It's tough enough to get deals that cashflow nowadays if you're putting 30%-40% cash down.
Anyways all that being said, get the HELOC. It'll be good to have access to that money in case an opportunity does come along.
You won't be able to tap into all of that home equity, but doesn't sound like you need it anyway.
The bank will probably lend ~80% CLTV. Meaning you take 80% of your home value, then subtract out your first mortgage, and that's about what they'd give you for a HELOC. Depending on loan size, credit score, and other factors this CTLV might be limited to 75% or even 70%.
I think it's a good plan to leverage your homes equity to buy another deal. But the challenge will be finding something where the numbers make sense because what you will be doing is 100% financing on that investment property (you'll have your 1st mortgage on that property, then the HELOC is indirectly debt on that investment property). Plus you'll be 100% financing with expensive debt. Both your 1st mortgage and your HELOC will come with high rates.
It's tough enough to get deals that cashflow nowadays if you're putting 30%-40% cash down.
Anyways all that being said, get the HELOC. It'll be good to have access to that money in case an opportunity does come along.
You won't be able to tap into all of that home equity, but doesn't sound like you need it anyway.
The bank will probably lend ~80% CLTV. Meaning you take 80% of your home value, then subtract out your first mortgage, and that's about what they'd give you for a HELOC. Depending on loan size, credit score, and other factors this CTLV might be limited to 75% or even 70%.
I think it's a good plan to leverage your homes equity to buy another deal. But the challenge will be finding something where the numbers make sense because what you will be doing is 100% financing on that investment property (you'll have your 1st mortgage on that property, then the HELOC is indirectly debt on that investment property). Plus you'll be 100% financing with expensive debt. Both your 1st mortgage and your HELOC will come with high rates.
It's tough enough to get deals that cashflow nowadays if you're putting 30%-40% cash down.
Anyways all that being said, get the HELOC. It'll be good to have access to that money in case an opportunity does come along.
Thanks, it seems like a good tool overall regardless. any specific companies you recommend? I have good credit. I have been going between Penfed and Bank of America.
You won't be able to tap into all of that home equity, but doesn't sound like you need it anyway.
The bank will probably lend ~80% CLTV. Meaning you take 80% of your home value, then subtract out your first mortgage, and that's about what they'd give you for a HELOC. Depending on loan size, credit score, and other factors this CTLV might be limited to 75% or even 70%.
I think it's a good plan to leverage your homes equity to buy another deal. But the challenge will be finding something where the numbers make sense because what you will be doing is 100% financing on that investment property (you'll have your 1st mortgage on that property, then the HELOC is indirectly debt on that investment property). Plus you'll be 100% financing with expensive debt. Both your 1st mortgage and your HELOC will come with high rates.
It's tough enough to get deals that cashflow nowadays if you're putting 30%-40% cash down.
Anyways all that being said, get the HELOC. It'll be good to have access to that money in case an opportunity does come along.
Thanks, it seems like a good tool overall regardless. any specific companies you recommend? I have good credit. I have been going between Penfed and Bank of America.
Talk to a loan officer at both and compare the offers. Last I knew, BofA doesn't charge any closing costs which is amazing.
Hey @Brandon Morgan,
There are several banks/credit unions that go up to 100% loan to value on helocs if you’re looking to get a lot of that equity. I also have some lenders that could help on the heloc or fixed second side. Feel free to reach out!
Hey @Brandon Morgan,
There are several banks/credit unions that go up to 100% loan to value on helocs if you’re looking to get a lot of that equity. I also have some lenders that could help on the heloc or fixed second side. Feel free to reach out!
Hey @Brandon Morgan,
There are several banks/credit unions that go up to 100% loan to value on helocs if you’re looking to get a lot of that equity. I also have some lenders that could help on the heloc or fixed second side. Feel free to reach out!
I’ll send you a message!
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
wow that's amazing! great work!
I literally did this exact same thing. I took out 55k for renovations. Second home was going to be a house hack so I only put down 3.5% but needed the 50 for renos. My goal is to pay back that 55 within 2 years, not doing a refi though. Don't want to lose my rate but the HELOC rate is at 10% now so tha'rs pretty tough. It was like 4% when I opened it a few years ago, so maybe looking into fixed ones instead.
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
I literally did this exact same thing. I took out 55k for renovations. Second home was going to be a house hack so I only put down 3.5% but needed the 50 for renos. My goal is to pay back that 55 within 2 years, not doing a refi though. Don't want to lose my rate but the HELOC rate is at 10% now so tha'rs pretty tough. It was like 4% when I opened it a few years ago, so maybe looking into fixed ones instead.
I literally did this exact same thing. I took out 55k for renovations. Second home was going to be a house hack so I only put down 3.5% but needed the 50 for renos. My goal is to pay back that 55 within 2 years, not doing a refi though. Don't want to lose my rate but the HELOC rate is at 10% now so tha'rs pretty tough. It was like 4% when I opened it a few years ago, so maybe looking into fixed ones instead.
Happy to hop on a call if you want more info but here is the basic gist of it:
-Getting the HELOC was pretty easy but the process still took a few months so be weary of that (I'm sure some people will comment on here you can get it done faster)
-My rate started super low (like 4% I think) now is at 10%
-Interest only for 10 years (mine at least)
-Harder to find but I wish I explored fixed rates
-I had the opportunity to get like 90k but didn't want that power. I regret that. My thought was what is the highest amount of debt I would feel comfortable with at once and what is my pay off plan, that number was 55k
-I used it to renovate my current house hack (duplex) but I got a 4% on it so I never planned on doing a cash of refi, the numbers wouldn't work. Instead I send the cash flow straight from house hack #1 to pay it off then do everything I can on my end like throwing bonuses, extra savings/month at it)
-I don't love having that much debt but the alternative was no second house hack and def not at 4%. I am comfortable with my decision because I can grind and suck it up for 2-3 years to be in a much better position long term. Everything I do is with the long game in mind.
@Andrew Freed is a heloc king. He feels much differently about paying those off but not everyone will be comfortable with that risk level. He's a great person to hear the other side from.
I used HELOCs to go from 1 unit to 95 units so I definitely believe in the power of HELOCs. At a certain point, it all depends on your risk level. However what is the alternative? Save for 2-3 years for 20-25% down before buying your next property or leverage the equity in the already existing properties. At the end of the day, it's all about arbitrage. If the HELOC money combined with bank financing provides a blended rate of 8.5% and you are getting a 12% CoC return after cash flow, tax benefits, mortgage paydown and appreciation, I think it makes sense however I have a high risk tolerance. If you have a strong cash position and maintain that position, utilizing leverage to grow is smart in my opinion. A business fails due to running out of cash so as long as you negate this potential issue, its the play in my book.
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
were there any issues with the changing of rates with the HELOC and the cash flow from the rentals? or did that not matter because you paid back the HELOC's as soon as possible?
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
were there any issues with the changing of rates with the HELOC and the cash flow from the rentals? or did that not matter because you paid back the HELOC's as soon as possible?
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
were there any issues with the changing of rates with the HELOC and the cash flow from the rentals? or did that not matter because you paid back the HELOC's as soon as possible?
ahh very brilliant. I think I will try that strategy. I make over 100k at my W2 job so I will use about 40k of my HELOC as a down payment (I was given a 70k HELOC) and then ill just pay it off as soon as possible. seems like a really good strategy!
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
were there any issues with the changing of rates with the HELOC and the cash flow from the rentals? or did that not matter because you paid back the HELOC's as soon as possible?
you say you took out 38k from the HELOC as a down payment. what percent down was that? how much did your first couple properties cost?
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
were there any issues with the changing of rates with the HELOC and the cash flow from the rentals? or did that not matter because you paid back the HELOC's as soon as possible?
you say you took out 38k from the HELOC as a down payment. what percent down was that? how much did your first couple properties cost?
does anyone have any experience with using their current homes equity for down payment on another home? I have a lot of equity on my current home and was thinking of taking some out in the form of a HELOC as a down payment. based on all my research it seems like a useful tool. I have over 200k in equity and I wouldn't need more than 50k for a downpayment. any advise on this?
As others have mentioned, HELOCs can be a great tool if you're sitting on meaningful equity in your primary home. In the current environment, it's quite challenging to get a HELOC on an investment property. So, you're basically looking at equity in your primary home.
Alternatively, if you own 3+ long term rental units, it's worth considering using revenue based financing. In this scenario, you'd trade a portion of your rental income (from your existing portfolio) in exchange for upfront cash. Typically, you'd use these funds to renovate your properties or as a down payment on your next rental property.
We can provide this type of funding in all 50 states. Happy to chat and take a look at your particular scenario if interested.
@Brandon Morgan
I bought my first two rentals from a HELOC since I didn't have any money at the time. Then I did a cash out refi on my primary a couple years later to use the cash to buy 3 rentals with 20% down on each. Using this equity in my primary launched my real estate investing with zero out of pocket money. Since then, I've scaled up with 3 more cash out refis to buy 12 rentals for free (no out of pocket expenses for down-payments on new purchases). I'm a fan of using equity to scale up. Not all of us have 50-70k sitting around in savings for down payments for new purchases. So might as well use built up equity just sitting there doing nothing!
How was your experience using the HELOC for buying rentals. I have heard HELOCs are better for flipping as opposed to rentals. and I agree, it's a lot, I make a little over 100k a year so I know I can pay it all back but having 50-70k at one time jus sitting there is not possible for me.
were there any issues with the changing of rates with the HELOC and the cash flow from the rentals? or did that not matter because you paid back the HELOC's as soon as possible?
you say you took out 38k from the HELOC as a down payment. what percent down was that? how much did your first couple properties cost?
wow! really nice strategy. Im thinking I can probably use some of the cash I saved up with the HELOC to be able to buy now since I make a lot with my W-2. thanks a lot!