I've heard people using cash from a HELOC on one property (A) to buy an investment property (B), then immediately do a cash-out refi on B and put the cash right back to the HELOC on A. I'm planning to do that, however I am just wondering whether the HELOC on property A (debt-free primary home in my case) will negatively impact my ability to get cash-out refi on B (an investment)? I am worried the unpaid HELOC plus the new mortgage would tip me off the DTI ratio. It looks like a bit of a catch-22: I can't paid back the HELOC unless the lender gives me the cash-out refi, but I can't get the refi unless I pay off the HELOC? How did you get to utilize the equity in your existing properties to invest in more?
There's another loan option that you may or may not be aware of. It's called a "DSCR" debt service coverage ratio loan.
Most lenders that specialize in single family homes don't issue these. Investor focused lenders do.
The DSCR lenders tend to look at whether or not the income on the property covers the mortgage as opposed to looking at your own income or your DTI. They'll look at this too but it's not the main factor.
Keep in mind though, even though this particular type of loan isn't centered around your personal DTI, it will increase your debt obviously and that'd impact your ability to borrow future loans that do factor in DTI (as paying for the DSCR loan increases your monthly debt)
Real Estate Agent · Clinton, MA · Member since 2017 · 35 posts · 35 votes
4y
It will affect in 2 ways: if you have to make payments on heloc, it will affect DSCR, and even if you don't use the money, it will show up as a possible risk to the lending institution. That being said, DSCR is what lenders look at most on residential lending side. Having heloc never raised any questions for me.
Thanks for the insight. So the lender will be more focused on property B's income producing ability, rather than the HELOC on my primary home. BTW if they only count 75% of the rent income when calculating SDCR, then I'm likely to be cashflow negative in their book.
Architect · Falls Church, VA · Member since 2021 · 5 posts · 1 vote
4y
Hey I'm in the same boat right now - about to use a HELOC to purchase with cash and then REFI with BRRRR. I was up front with my lender and they calculated the monthly interest payment of the full HELOC amount towards my DTI, and I got pre-approved for an initial with the HELOC in my DTI. But, another lender I was pre-approved with didn't take the HELOC into account and wasn't too concerned about it (this was TheOneBrokerage - David Greene's brokerage; but once I'm connected with a specific lender by the brokerage, they could care more about the HELOC, not sure yet).
Long story short, I'd identify a few lenders you'd be interested in using for the cash out REFI, and explain the scenario to them just to be sure you're not screwed when you try to REFI later.
You're way ahead of me in this process! Will definitely talk to a few lenders to identify those who are more comfortable with what I'm trying to do. Thanks heaps for sharing your experience and hope your refi goes smoothly!
There's another loan option that you may or may not be aware of. It's called a "DSCR" debt service coverage ratio loan.
Most lenders that specialize in single family homes don't issue these. Investor focused lenders do.
The DSCR lenders tend to look at whether or not the income on the property covers the mortgage as opposed to looking at your own income or your DTI. They'll look at this too but it's not the main factor.
Keep in mind though, even though this particular type of loan isn't centered around your personal DTI, it will increase your debt obviously and that'd impact your ability to borrow future loans that do factor in DTI (as paying for the DSCR loan increases your monthly debt)
There's another loan option that you may or may not be aware of. It's called a "DSCR" debt service coverage ratio loan.
Most lenders that specialize in single family homes don't issue these. Investor focused lenders do.
The DSCR lenders tend to look at whether or not the income on the property covers the mortgage as opposed to looking at your own income or your DTI. They'll look at this too but it's not the main factor.
Keep in mind though, even though this particular type of loan isn't centered around your personal DTI, it will increase your debt obviously and that'd impact your ability to borrow future loans that do factor in DTI (as paying for the DSCR loan increases your monthly debt)