Updated almost 13 years ago on . Most recent reply
Line of credit as down payment then pull out equity
Would this make sense and should I do this? I am a long way from having a down payment, but I have great credit and have a large amount of credit available. I am still new to REI and my strategy is to buy and hold.
Would it make sense to use a line of credit to put down as a down payment on a house to avoid PMI and finance the rest through a conventional loan? I'm thinking, if I put down 20% deposit, I would then have at least 20% equity on the house, where I would take out the equity and payoff the line of credit. From there, I would just payoff of the mortgage and rent it out. If the mortgage payments make sense, should I finance this way?
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They won't have a problem with you using the HELOC for a down payment as long as you still meet the DTI requirements on your gross income. So you'll have to be able to cover your primary residence mortgage, the HELOC, and the new investment property mortgage with less than 50% DTI at least. They'll want you to have sufficient reserves also.
Like Lynn said, with 20% equity in the house you won't be able to cash out refi to pay off your HELOC (which wouldn't be smart anyways) unless the property has appreciated big time AND you've waited a year for seasoning.
I have no clue what you mean by "just pay off the mortgage and rent it out" though. Care to elaborate?