Rental purchase using HELOC as Down payment.

14 Replies

Hey guys and girls, Game warden from Kentucky seeking some advice for a rental property I have under contract. What do you think my best option is for coming up with the Down payment for this property? I have a HELOC on my primary residence for 4% at 51,000 and the purchase price for the rental I have under contract is 77,500 . I am trying my best to not reach in my checking or saving for the DP but I also know that if I pull from my HELOC for the DP I will be paying out interest. My plan is to put close to 10,000$ in the rental and refinance in 6 months to a year to pull out cash to pay myself back. I just want to know what your opinions are and what you would do in this situation.

That would be a perfect move for HELOC money in my portfolio, as it wouldn't max my line, and the goal is to repay after improving the property, ideally under a year.

@Trevor Lowe

Having trouble seeing if this makes sense with the limited info you've provided. I'm surprised you've got a house under contract without having clearly identified the source of your down payment. Is this not a conventional loan?

 @Andrew Kougl

Maybe I didn't explain this well enough, I have the money in my personal accounts to use as my DP. My question is do I use my line of credit for the DP or do I use my personal funds for DP and just use my HELOC on repair costs. It will be a conventional loan with 20% down. Also, very interest in the idea of syndication but is that used very often on smaller deals like this?

@Ronald Allen Barney

Thank you, As far as meat left on the bone. I think we are in good shape as the interest on the HELOC will not amount to very much. My initial plan was to use the HELOC as DP and use HELOC for rehab costs. I would have a Conventional loan close to 325$ and HELOC interest under 100$ to make total payment at around 425 w/o taxes and insurance. In 6 months time, I will have remodeled the house and should be able to pull back out my initial investment and restore my HELOC Line.

@Trevor Lowe Depending on your credit/cash reserves how will using the savings affect your ability to get a conventional loan?

If the interest is an issue on the HELOC, maybe you can use some of the 18-24 months no interest credit cards to run your rehab and use your saving for the down payment. This gives you the ability to close and rehab with no interest.

@Wes Evans   It will not affect my ability to get the loan.  I've built a decent reputation with my loan officer and have equity built up in other property's that he has helped me with.  Those are other sources I could pull from but leave as last resort.  I guess I'm a little behind the credit card wagon.   I haven't checked into that area and appreciate the information.  That sounds like a great source for my rehab costs.  Do you know what credit card company's offer that? 

@Trevor Lowe use your personal savings. The only two differences are that the Helco you pay interest kn and the personal savings you are emotionally attached to. Most Helocs can be transfered into personal savings in less than a minute. Sace the interest and get comfortible seeing less zeros in your psrsonal accounts.

@Trevor Lowe Run the numbers and ensure you include your HELOC payments into your debt service. With that being said, your goal should be to get that HELOC back out through refinancing (like you mentioned.)

Also, since you are planning on refinancing, go with an initial loan that has low closing costs, and zero early payoff penalty.

Your on it! Best of luck!

If you’re going to be able to pull the money back out, I think that would be a very wise move. I’ve done that on a property, where I used it to buy a property with a 15% down payment but it had a lot of equity. 6 months later I did a cash out refi and paid off the credit line

@Trevor Lowe

Okay. I'd use your personal funds unless you have that earmarked for something else or it is your emergency funds which in that case you obviously shouldn't touch it.

Money is a game of interest and having the funds sitting in a checking account you are losing value to inflation.

If you take the money from your HELOC now you are paying additional interest you don't need to pay.

There is no reason to keep a lot of money in a bank account unless you are planning on investing it in the very short term. After you have enough reserves you should be investing and not hoarding cash.

5% interest on $52,000 is $2600 for the year.

If you keep the HELOC for 6 months, that's $1300 in holding costs.

If you have the funds in checking, I'd use that for the down payment and then as you go through the rehab, draw from your HELOC. You'll end up paying less interest and can always have the HELOC there as emergency/contingency funds anyway.