Can you borrow the down payment from one lender to then use to secure a mortgage with a second lender? And is that a good idea?

29 Replies

Looking to get into my first multi-family property (first of any type of property actually) and I don't have enough for a down payment.  Would it be possible to borrow the 20-25% needed for the down from bank A and then turn right around and give it to bank B as the down payment needed to secure the whole mortgage for the multi-family units?

Kevin R. 

Welcome to BP, Kevin. 

All lenders want your skin in the game, the only way to borrow a down payment is by showing you didn't need to borrow it. If you have 250K tied up in CDs (shutter to think) and you borrow a 100K against those CDs, not a problem. So long as the subject property cash flows, you have the credit, the experience in management and have reserves for maintenance and vacancy. 

A multi-family (5 or more units) may not be where you need to start out, be more successful by lowering your expectations getting out of the gate, like a single family property. 

Now, there can be circumstances where you can get seller financing and there are other strategies to get into properties, so start reading the forums and ask questions (and stay away from the gurus, learn RE before you deal in RE!) Good luck :)

yes, you can get a signature loan for the down payment of you have collateral. I'm debt free and used my truck and wife's car to secure a 45k signature loan for a down payment last year. I also got my mortgage loan through the same bank. I paid it off and am doing it again to buy another property that I will close on in 3 weeks. There is always a way off you are persistent. 

by the way I'm investing in single family rentals at the moment. 

Borrowing from one bank to another will kill your chances of getting a loan. if you have 401K I would borrow from there instead. Banks are eager to lend to individuals with sweat and tears in the game. In other words you worked hard to earn that money and less chance of you walking away from the loan.

Good Luck.

I wouldn't recommend borrowing your down payment unless you can pay it back quickly. It will most likely take away cash flow and turn it into a losing property 

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Understand too, borrowing from one and then applying for a mortgage means you need to disclose that funds for the down were borrowed, that will then mean that you must qualify with both payments. 

Having a borrower relationship with more than one institution is just good business, you don't ever want to be a captive borrower in commercial real estate, landlording, fix and flips because, that lender can change policies in mid stream, you might have a balloon payment due and they can sorry, we're not doing these any more.....then what. Your financial position can change too, they can stop lending where another bank will say yes, especially if you have a relationship with them. Banks understand this, behind the scenes they are probably doing business with other banks too!  It's good financial management. :) 

If your funding is that tight, what are you going to do if/when unforeseen expenses arise?    For instance, one of my complexes had unground water leaks.    First detected after an $11K water bill, prop mgmt. thought they fixed it, then the next month was $9K, meaning more repairs.    I'd recommend a conservative operating reserve, and then be sure you have a debt service coverage ratio of 1.25 or more for all debt used to purchase the property.

Borrowing the down payment doesn't sound like a very good idea to me unless you found the deal of the decade that's going to cash flow like crazy from day 1.

Thanks for all the responses, that's why I'm here, to learn from people who have been there. I'll definitely keep reading these forums, seems to be a ton of good info on here!

While a bank may look at the 20-25% from another bank as less risky than lending 100%, the expectation when they say they'll loan 75-80% is that the down payment (the other 20-25%) is coming from the borrower, not another lender. As others have said, a lender wants YOU to have skin in the game.

The most definitive answer would come from "bank B" in your scenario, however. Ask them what sources of down payment are acceptable at a given LTV.

To answer your other question as to whether this is a good idea- probably not. But that depends on a number of factors. In this case, the banks will probably tell you it's not a good idea in their own way by declining to offer financing for the scenario.

Keep at it, and best of luck to you.

it all comes down to your debt to income ratio. 

@Kevin Roach

As Bill said..... You have to have skin in the game...... Some ideas for down payment (they will want to see bank statements and question large deposits as well for the previous 2 months) 

Funds can come from an equity line of credit or a refinance of your primary as well as retirement funds. 

You can also purchase a property where purchase prices are lower so you can afford the down payments, but you would have the expense of a property manager as well. 

Thinking of borrowing down payment from my pension for investment property,  i'm paying it back to myself rather than a bank. Recently cleared all credit card debt so I'm thinking the payments I was making to my 3 credit cards will then go to my pension and kind of offset my payments back to my pension. Good idea BP?

To add to what @Jerry Padilla said you can also look to use the equity on your vehicle for a LOC. Through my credit union I am able to just roll it into my current car loan at 3%(which is the current rate on loan) and adding a year to the term. You need to have a very good relationship with your bank to do this!

There are companies that will give you a cash access business loan that you could use for this purpose.

Anyone know a equity lender that would put up the 20-25% equity knowing another bank will be in 1st position? An equity lender that charges under 10%?

Let me know?

Originally posted by @Lance W. :

Anyone know a equity lender that would put up the 20-25% equity knowing another bank will be in 1st position? An equity lender that charges under 10%?

Let me know?

If you have to ask this question after already putting a Building with 142 Units under Contract, good luck with that!...

Originally posted by @Brent Coombs :
Originally posted by @Lance Wayne:

Anyone know a equity lender that would put up the 20-25% equity knowing another bank will be in 1st position? An equity lender that charges under 10%?

Let me know?

If you have to ask this question after already putting a Building with 142 Units under Contract, good luck with that!...

 LOL. Glad you got my joke. 

@Kevin Roach I had the same question; glad you asked.

Has anyone used peer-to-peer lending from sources such as: Prosper or Lending Club, for your down-payment? If so, how did it work out and would you borrow from these lenders again?

@KevinDarrell My husband and I are also thinking of using our 401Ks as down payment for our first investment property; especially, since we'll pay ourselves back and only have to pay a small processing fee to withdraw funds.

@PatriciaJoseph, i was told another was option was converting your 401k to a Self Directed IRA and using those funds to then invest in real estate. Funds earned would then go back into IRA if I'm describing it correctly.

Originally posted by @Kevin Darrell :

@PatriciaJoseph, i was told another was option was converting your 401k to a Self Directed IRA and using those funds to then invest in real estate. Funds earned would then go back into IRA if I'm describing it correctly.

Using self-directed retirement account for real estate investing is good idea. I just would like to add that if you decide finance your investment - non-recourse loan must be used. Conventional loan would not work in this situation since account owner would be prohibited from providing personal guarantee for the loan.

@Patricia Joseph

If you decide to use a non-recourse loan when investing an IRA in real estate, you need to be aware of unrelated business income tax (UBIT) which may apply. For this reason, it may be best to look into a self-employed 401k as UBIT generally does not apply to 401k real estate purchases that are finance with non-recourse funds. The following IRS website sheds light on UBIT.

https://www.irs.gov/Charities-&-Non-Profits/Unrela...

@Mark Nolan can you explain what is a non-recourse loan?

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