Personal line of credit #ASKBP

9 Replies

Hi all. I'm wondering what you guys think about using personal line of credit to put downpayment on my next rental. Does it make sense to use cashflow from the property to pay off credit? #ASKBP

@Igor Tomic  

As you note downpayment, I presume the balance would be a mortgage; as such, I'd imagine this would depend on whether the mortgage lender will even allow the downpayment to be from "Borrowed funds"?

Noticed you're in Ontario - I'm not overly familiar with US lending but in Canada that's a no-no with the major banks from what I have seen/experienced...

Hi Igor;

I invest in Ontario and have done what you are considering. Basically the bank will quaoify you for the mortgage, you will need to show proof of funds...but cannot be the actual LOC. Once you are approved and they are working towards closing the actual funds can come from wherever you decide....hence you can use your LOC and not touch your savings...

Thomas

@Igor Tomic

The message between the lines in @Thomas Lorini 's post is your downpayment cannot be borrowed.  If you have sufficient cash-on-hand, but choose to draw down on an unsecured LoC, you should be alright - though I would argue that you should use the cash on hand and only draw down the LoC when necessary to save on interest charges.

Agree with Roy N . I just bought my 2nd rental in Ontario and I showed the bank that I had say, $20K coming from a chequing account, when in fact I am pulling money from my line of credit.

I am using the CF to pay off my LoC, while my chequing account will have the $20K sitting ther,e ready for the next deal

You could even use promotional offers from CC with no interest for 12-18 months, just do not write it in contract :)) and be sure to pay off before the deadline

This also depends on the particular bank that you are using. Some banks source the funds down to the details to ensure you are using the down payment funds you declared in the beginning.

i.e. I had the cash in my account and wanted to borrow money for the DP. However i had to show that the cash was in my account to apply for the loan since borrowed funds are not allowed. When i wired the money to the escrow officer for closing i had to show proof that that money was coming from the same account that i initially declared when applying for the loan. So there was no way for me to switch and used borrowed funds. Some banks like @Justin H. mentioned might not check that and you can therefore switch up the source at closing.

Originally posted by @Jane A. :
You could even use promotional offers from CC with no interest for 12-18 months, just do not write it in contract :)) and be sure to pay off before the deadline

That is still borrowing and would have you tap dancing with mortgage fraud .... at least here in Canada.

Thanks all for reply. I purchased a property in March of this year and remember I had to show them funds in my account. I used different bank for mortgage then i use for my personal banking. So even if I transfer funds from my LOC to my checking I still can't use that? I have LOC right now so there is no need to get another or new one.

If I can't do that I'm thinking to get a family member write me a check for 10k for example and get gift letter from them. After I close the deal I can get my LOC an pay them back. I don't think there is anything wrong with that......or am I wrong?

Originally posted by @Igor Tomic :

Thanks all for reply. I purchased a property in March of this year and remember I had to show them funds in my account. I used different bank for mortgage then i use for my personal banking. So even if I transfer funds from my LOC to my checking I still can't use that? I have LOC right now so there is no need to get another or new one.

If I can't do that I'm thinking to get a family member write me a check for 10k for example and get gift letter from them. After I close the deal I can get my LOC an pay them back. I don't think there is anything wrong with that......or am I wrong?

 Igor:

Why draw down your LoC before you absolutely need the funds?  It's a tomäto / tomâto discussion.   If you use the funds in your account, you can always draw down on your LoC if you require funds before you have rebuilt a balance in the account.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here