Providence, RI · Member since 2014 · 5 posts · 0 votes
My wife and I are thinking to take out cash advances from her credits cards, to gift over to my account for a down payment on an investment property. We're looking to get $15K-$20K out of it.
We're looking for advice on whether this is a good idea or not.
The property we're looking to buy is between $75K-$100K with repairs needed.
In the end, worst case scenario, we would be able to sustain payments on the credit card and the mortgage if necessary. We are just trying to get the down payment faster than just saving up for it.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
10y
This can be a really good strategy, or a catastrophic one.
Borrowing cash against your credit card is really no different than any other line of credit. You just have to be careful because the terms for credit card cash advance are downright LOUSY to say the least.
things you want to look for:
1. cash advance limit and credit card limit are generally not equal. a 20k credit card might have 5k cash advance limit.
2. cash advance has a different rate than for purchases. I have cards that are 18mos @ 0% but for cash advance the rate is 22%. Make sure you KNOW the terms that you're borrowing, don't assume you know
3. cash advance has a fee. This is the most minimal part, but make sure you know if there are any fees associated with an advance. usually it's ~$15
if you can use the card and still be profitable then go for it. The ease of use is very appealing. The cost can be brutal though. Heloc would be a much better method if available.
Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
10y
There's not really enough info to tell you whether it's a good idea or not, but it sounds like an expensive way to come up with the down payment. Some questions to consider....How will you pay the credit card debt off? ("Sustaining payments" on the cash advance isn't the same as paying it off.) Have you confirmed that you'll still qualify for the new mortgage once you take the cash advance and your DTI ratio goes up? How will you pay for the repairs that will be required once you purchase the property?
Providence, RI · Member since 2014 · 5 posts · 0 votes
10y
Hi Klye,
I haven't confirmed with any lender about qualifying for the mortgage while having the cash advances on record. I used some calculators online and summed up my expenses and what I expect to be my minimum monthly payments on the credit cards and it came up with a 33% DTI.
Although my wife and I are working together to try and get the down payment, we plan on, once the home is purchased under my name, that I will shop around for a personal loan to 1) pay off the credit debt 2) pay for repairs and 3) sustain payments on the loan itself while we put the house back on the market. I read some other forms that said not to tell the lenders that the personal loan will be for home repairs, so I was planning taking the loan out on the premise that it was for debt consolidation.
We are still in the early stages of planning and searching for a good enough deal so that the profit on selling the house will cover the remaining mortgage and personal loan and leave us with a little more than what we had to begin with.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
10y
This can be a really good strategy, or a catastrophic one.
Borrowing cash against your credit card is really no different than any other line of credit. You just have to be careful because the terms for credit card cash advance are downright LOUSY to say the least.
things you want to look for:
1. cash advance limit and credit card limit are generally not equal. a 20k credit card might have 5k cash advance limit.
2. cash advance has a different rate than for purchases. I have cards that are 18mos @ 0% but for cash advance the rate is 22%. Make sure you KNOW the terms that you're borrowing, don't assume you know
3. cash advance has a fee. This is the most minimal part, but make sure you know if there are any fees associated with an advance. usually it's ~$15
if you can use the card and still be profitable then go for it. The ease of use is very appealing. The cost can be brutal though. Heloc would be a much better method if available.
Rental Property Investor · Baltimore County Maryland and Tampa Florida · Member since 2013 · 2k+ posts · 2k+ votes
10y
Hopefully you have the 0% offers to use otherwise that'll be a super-high APR. You need to look very conservatively at the numbers to know if you can pay this off quickly before the 0% runs out (assuming it's 0%, I would not recommend normal cash advance APR). I have used this tactic before and am happy I did. The first year was a bit tight for me to make sure I paid it off.
Vendor · Cincinnati, OH · Member since 2014 · 144 posts · 58 votes
10y
My ex bought a 2 family with a bt check before I met her. It turned out to be a horrible plan only because she didn't get a very good deal on the property. Shes now stuck with a ridiculous interest payment on it on top of it.
That said I've recently been getting my tradelines increased and plan on using cards to pay for the rehab on a flip. Just make sure you buy very carefully. Even if you have to walk away from 50 deals its better than being stuck with a huge credit card bill. I believe you will need to season the funds for like 3 months too.
Investor · Monroe, WI · Member since 2015 · 691 posts · 610 votes
10y
When I receive "convenience checks" in the mail from a credit card that offers at least a year of 0% APR and alot of my cards only charge a 1 or 2% fee, I will write a check out to my wife for as much money as I need and just make minimum payments until I can pay it off, I ultimately have a plan in place to make sure the whole balance is paid before the 0% APR runs out. It can be a great way to borrow very cheap money but the credit card company's count on you not paying it off by the end of the promotional run, just be careful. If done right, it's a powerful way to come up with needed cash. Let's say you need 5K to come up with the rest of a DP, and you get a 0% offer, this is when it's very nice because you borrow the 5K and buy the property, and use the cashflow to pay the 5K off.
Investor · Seattle, WA · Member since 2015 · 195 posts · 101 votes
10y
I'm with David above, most lenders will require you to season that money. In my experience, most lenders won't allow you to borrow money for the down payment. They'll take your first born and your blood though!
Providence, RI · Member since 2014 · 5 posts · 0 votes
10y
Thanks everyone for the advice.
As far as seasoned money, is that requirement per lender? That is why I figured to have the money put into my wife's account and have her give it back to me as a gift with a notorized letter.
When I bought my first home, that is how I got the down payment and the house was bought under my name. My lender didn't ask for anything more than the letter.
It could work but more likely will end in personal bankruptcy when the investment hits a snag. They all do at some point. If you do not have the money to start you probably do not have the discipline to succeed and should not attempt what is by far the most risky approach.
The risk you are taking is losing everything and setting yourself back 10 years. Are you up for the challenge or do you think it would be wiser to buckle down and pull your life together financially first.