Using a HELOC to buy an Investment Property

13 Replies

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.

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...

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.

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.

@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.

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.

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

Originally posted by @Michael J Bensimon :

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."

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

We hate spam just as much as you