I am in the process of getting a HELOC on my home now, but my question is how do you use a HELOC when using it as a downpayment?
I am just trying to figure out that if I take out $30k on mine, and use that as a downpayment on a $100k house that rents for $1000 a month, isnt that HELCOC payment then eating into my cashflow for the 25 year life of that loan? Or should I pay it off early, and reuse it?
Not new to rentals, but new to HELOCs and am sort of lost.
One thing to keep in mind if you have never used a HELOC before to buy a home. A lot of guide lines have changed especially after COVID-19. There are a lot of banks/lender who will not let you use a HELOC for the down payment for a few reasons. A HELOC is an open end liability similar to a credit card. It's a loan not actual cash in hand or what banks/lenders refer to as reserves- liquid cash. So in most cases it makes more sense to do a cash out refinance so that you use the cash in hand as down payment or liquid reserves. When getting approved for an investment property banks/lenders require borrowers to show they have a certain number of months PITI reserves in the bank standard 3-6 months. Unless Jumbo.
A HELOC cannot provide a PITI reserve because its in a liability form so you would have to draw out the funds and be approved with the new HELOC pre posed payment. In most cases if you have to use a HELOC the best thing to do would be to draw funds out (3) months prior to the mortgage application. So that you have the funds in the bank that can be used for reserves and proof of funds for DP. Check out the cash out refinance rather than the HELOC.