Home Equity Loan as Down Payment?

Question

Is it foolish to use a Home Equity Line of Credit as a down payment on an investment property?  We have our primary residence payed off and have been approved for a line of credit on the house at 5.25% for 10 years.  The terms of the loan result in a pretty high monthly payment as you can imagine so our cash flow takes a hit there.  It would take us another 2-3 years to save the $20,000 or so we'd need for a down payment.  Any suggestions?

Chad Rider · Answer

HELOC is a terrific option. We also have one from Huntington on our primary and use it as needed for things, including investing. Be careful though, as the interest rate on HELOC's can be variable (unless you're under a special financing deal, ie. 2% for 6 mo) so keep an eye on it and pay it off as soon as you can.

Mike Warner · Answer

Hi @Hilary Hageman. I just signed on a my heloc from PNC bank on Friday.  The rate I was able to get was 3.4% they actually would have dropped by a quarter percent if I opened a checking account with them. Interest only for the 10 yr draw so that is a plus also. Shop around for a better rate. They are out there.

Julie Toh · Answer

@Hilary Hageman

You asked a good question!  A HELOC is a good option, the other option is to leverage your primary residence.  I'd advise my clients to refinance because the interest rate for a refinance - at least in my neck of the woods - is much lower than a HELOC.  Regardless, always shop around for a better rate.

Dante Pirouz · Answer

We use HELOCs from Huntington Bank and have gotten similarly low rates as @Joshua D.

If you want more details @Hilary Hageman on how to use HELOCs to expand your portfolio check out any of @Brandon Turner 's postings on the BRRRR method...genius stuff!

Hilary Hageman · Answer

@Joshua D. Woah, where did you find those terms?  My husband has a credit score of 800 so I'm thinking he'll be able to qualify for the best terms somewhere.

We're planning to buy and hold.  Looking at a duplex in a nicer area as our first rental investment.

Nicole Hoss · Answer

We are just starting out and have it in our minds that we want to keep the investment property finances separate from our personal finances. However, we can figure out how to get a loan to business loan/mortgage for our investment properties. I have our own HELOC on our house but aren't thrilled with the idea of racking up 100k on it. Is this a pipe dream and should we just suck it up and purchas on our personal HELOC? Any and all advice appreciated!

Cory Mccarthy · Answer

I also am doing the HELOC option and should close sometime in the next week or two.  Paperwork is processing now.  Plan to use as down, improve, sell then payoff just as @Joshua D. suggested.  Still searching for the right house, but have some options in the pipeline.  Also agree with others on the rate.  You should be able to do much better at this time than 5.25%.  I have seen in my area 3.25% advertised regularly.  Good luck to you.

Dante Pirouz · Answer

@Neal Hoss We did HELOCs on both our primary (that was the first one to get the ball rolling), and then on our duplex and that allowed us to buy 1 SFR for a flip and 1 SFR for rental. We will continue that ball rolling and prices have been appreciating quickly in Michigan so we are able within 1 year to have ARV 3 to 4 times the HELOC debt outstanding so that's a good set of numbers.

Hilary Hageman · Answer

Thanks @Dante Pirouz, I will stop by Huntington on Monday!  Funny you should mention the BRRRR method - I was literally JUST reading about that in Brandon's book on Rental Property Investing.

Nicole Hoss · Answer

Where you able to pay cash for the investment property and then get the HELOC in that property or did you get a HELOC on your primary residence?

Home Equity Loan as Down Payment?

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