Real Estate Investor · Pomona, NY · Member since 2016 · 29 posts · 7 votes
Hi BiggerPocket,
I recently reached out to my lender to ask about using a home equity line of credit as my down payment and reserve funds for purchasing another property and was informed that this is viable however, the lender requires a minimum of two months for the funds to be sitting in the bank. Is this your experience with all lenders or is there a way around the two month waiting period? Thank you in advance guys.
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
9y
I think what's happening is that lenders don't like to see you using borrowed funds as a down payments. when you get the loan, the lender will look over your last two months bank statements, and any large deposit or transfer will be scrutinized as to the source. If the HELOC funds sit in your account for two months, no one will see the source of those funds.
Walnut Creek, CA · Member since 2015 · 3k+ posts · 2k+ votes
9y
Two months of what funds? I'd hope if you're considering another investment you have at least two months of mortgage payments as a reserve, that's not very much...
Rockaway, NJ · Member since 2016 · 2k+ posts · 2k+ votes
9y
I think what's happening is that lenders don't like to see you using borrowed funds as a down payments. when you get the loan, the lender will look over your last two months bank statements, and any large deposit or transfer will be scrutinized as to the source. If the HELOC funds sit in your account for two months, no one will see the source of those funds.
Yes, we have reserves for our current properties, the HELOC would be for the down payment closing costs and reserves for the new investment property primarily.
Investor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
9y
they want the money to show on the balance of the acct for two months. That seems to be the normal look back for bank acct balances. That shows you don't have that money in there temporarily. The underwriter wants to feel like that is truly extra monies.
Real Estate Broker · Lehi, UT · Member since 2016 · 397 posts · 318 votes
9y
@Eric Rodriguez Are you using the same lender for both the HELOC and the new investment property? In my experience, the waiting period can vary from bank to bank but they like to know the source of the money. Last year, I refinanced an investment property and pulled out some equity to use as the down payment on another investment. My lender did not require any amount of waiting before closing on the new property, because they were aware of the source of the money.
Investor · Odenton, MD · Member since 2017 · 204 posts · 144 votes
9y
No not correct . You can use a heloc as reserves but I would pull out the reserve amount and let it sit in an account for a few months. This will show the lender you don't need the reserves to run daily activities.
Investor · New York City, NY · Member since 2016 · 41 posts · 12 votes
9y
Yeah, this should not be an issue at all. HELOC funds can be used immediately for a down payment. My bank has no issue with this. PM me if you want to discuss the scenario further.
Real Estate Investor · Pomona, NY · Member since 2016 · 29 posts · 7 votes
9y
Originally posted by @Account Closed:
Yeah, this should not be an issue at all. HELOC funds can be used immediately for a down payment. My bank has no issue with this. PM me if you want to discuss the scenario further.
Michael Bensimon
NMLS 9224
I don't have an issue to use the HELOC for down-payment, the problem would be to use the HELOC for my reserves immediately.
Here is the Fannie Mae guideline that says they allow HELOC and 401K loans to be used for both the down payment and reserves:
https://www.fanniemae.com/content/guide/selling/b3/4.3/15.html "Borrowed Funds Secured by an Asset Borrowed funds secured by an asset are an acceptable source of funds for the down payment, closing costs, and reserves, since borrowed funds secured by an asset represent a return of equity. Assets that may be used to secure funds include automobiles, artwork, collectibles, real estate, or financial assets, such as savings accounts, certificates of deposit, stocks, bonds, and 401(k) accounts." They have no requirement of time after receiving the funds, so find a lender that doesn't either. The only requirement that Fannie Mae has is:
"evidence that the funds have been transferred to the borrower."
Saint Cloud, MN · Member since 2017 · 38 posts · 5 votes
7y
What about using a HELOC to buy a house outright? Any issue with that? I would envision doing a flip or in a hold scenario, refinance into conventional?
What about using a HELOC to buy a house outright? Any issue with that? I would envision doing a flip or in a hold scenario, refinance into conventional?
If you have enough equity in your primary home, to my knowledge, there is no problem using your HELOC to purchase an investment property outright. A HELOC is a Line of Credit (LOC). You can use it for whatever you like for the most part.