Is it a good idea too...

10 Replies

Hello BP,

I'm new to all of this but I'm looking to jump in. I've always had the itch to do real estate and now I believe its calling me but just need to get started. I appreciate all the help and advice any of you could provide. Here goes...

 Is it a good idea to purchase an investment property using the equity in my existing home? 

If so, should I get approved for the equity then the mortgage for the investment property of get approved for the mortgage then go after the equity?

Thank you,

John

Welcome @John Fortes ! If you are just getting started I would take a quick read through the Bigger Pockets Ultimate Beginners Guide in addition to listening to the podcasts related to HELOC (home equity line of credit). I think that is a good idea depending on the % equity you have in the home. I am not sure what the order of events should be so I don't want to feed you false info, I'm sure others who have more experience with HELOCs will chirp in.

Thank you Nicholas. I have been listening to the podcasts for quite some time and have gone through the beginners guide. I appreciate your response. 

I would first go to any bank. They will give you a quick 1. preaproval or 2. denial (hopefully #1:-) based on your oral facts like your credit score, debt to income ratio, job stability, years at this job, reserves. Without even running your credit ( especially if you go to the bank where your account is) they might give you an answer. Now if they say that your debt to income ratio is not that good , taking out a HELOC on your primary residence will show up on your credit, so that is not beneficial for DTI ratio. They want to see enough reserves for closing costs, I don't believe you can use HELOC for that purposes.

So when you know all that factors you will figure out your next step.

Thank you @Lana Lee I appreciate your advice. So get approved for equity first before mortgage?

We are actually having the same debate with my husband. Having already 3 mortgages we are wondering if our DTI ratio is going to be unfavorable if we take out the HELOC for the next investment down payment. So we decided to go to out local credit union and got a bunch of options for the HELOC rates. They gave us like a work sheet of monthly payments for each option. Now we want to to our primary bank ange get a quick preaproval without pulling up our credit. We are going to mention to them all the dept that we have including that monthly HELOC payment that we planning to get. This way they will have an accurate picture of our DTI. So when the time comes for real aprouval there will be no surprises.

I hope it makes sense

Hello All!

Today I closed on my first investment property. Thank you to everyone that contributes not to this post but to the entire site as I've found so much useful nuggets to get this one done. I appreciate you all. 

Thank you!

Originally posted by @John Fortes :

Hello All!

Today I closed on my first investment property. Thank you to everyone that contributes not to this post but to the entire site as I've found so much useful nuggets to get this one done. I appreciate you 

 Glad to hear that!

CONGRATULATIONS!

How does that feel?

So did you end up applying for the mortgage first or HELOC. And did you use HELOC money for down payment on your first property?

Originally posted by @Lana Lee :

 Glad to hear that!

CONGRATULATIONS!

How does that feel?

So did you end up applying for the mortgage first or HELOC. And did you use HELOC money for down payment on your first property?

Thank you Lana! Yes we applied for the HELOC then got pre-approved, and went ahead and used the HELOC for down payment. Our lender was great, they worked with us and allowed us to purchase this SF as a second home and put down 15%. Pending the market, we plan on refinancing in 6-9 months pull out our down payment and move onto a multifamily deal. Plans, goals, targets... just trying to make it happen. Not looking to scale too quickly though. Taking our time during this process. There is no rush and there is plenty of deals for everyone.

Thank you for asking Lana and I hope your deals are going smooth as well. Hope you are not experiencing any issues with your DTI situation. How did you handle that situation, if you don't mind me asking?

We just settled on smaller amount of HELOC, which is still going to be enough for a down payment on duplex. We decided to take it slow and excepted a fixed rate of 3.99, 3 years draw period and 10 years Amortization period. So we have 3 years to use that money. I guess our lander is cautious and doesn't want to give away long draw periods considering the uncertainty of market in the nearest future. We are now looking for a deal, which is getting harder and harder to get in our area, considering that we want a low risk area with good schools and dissenting apreciation. Those properties are being snached by house hackers who don't mind offering more then asking price since they use FHA and only have to put around 3.5 of down payment and use the benefits of low mortgage rates.

Originally posted by @Lana Lee :

We just settled on smaller amount of HELOC, which is still going to be enough for a down payment on duplex. We decided to take it slow and excepted a fixed rate of 3.99, 3 years draw period and 10 years Amortization period. So we have 3 years to use that money. I guess our lander is cautious and doesn't want to give away long draw periods considering the uncertainty of market in the nearest future. We are now looking for a deal, which is getting harder and harder to get in our area, considering that we want a low risk area with good schools and dissenting apreciation. Those properties are being snached by house hackers who don't mind offering more then asking price since they use FHA and only have to put around 3.5 of down payment and use the benefits of low mortgage rates.

 I'm glad you got something out of it. But even if you don't find anything and the market tanks. You will be in prime position to capitalize on something. Whether you find a deal now or after something happens. You're in a win/win situation. God bless you. Besides, there are plenty of deals to go around. I'm sure you will find something because you are putting in the time to analyze such deals. Keep me posted on your journey. I also appreciate the useful help and advice. Thank you!

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