Investor · San Francisco, CA · Member since 2020 · 31 posts · 22 votes
Has anyone done this? I'm trying to use my creativity to break into the California market and house hack. I have some equity on a STR in Florida and would use it (if allowed) to pay for a downpayment on a FHA loan. I'm interested to talk to someone who has done it, or tried something similar.
Attorney · New York City / Long Island, NY · Member since 2020 · 597 posts · 248 votes
5y
You need to talk with some experienced mortgage brokers or bankers who do loans in California, they can give you advice specific to your situation. Even if you can’t do it the way you are thinking, they might have other alternative ways of buying that are at least as good, and perhaps even better. You’ll want some lenders on your investing team, now is a great time to start relationships.
Interesting question, very creative, please post what you find out.
Attorney · New York City / Long Island, NY · Member since 2020 · 597 posts · 248 votes
5y
You need to talk with some experienced mortgage brokers or bankers who do loans in California, they can give you advice specific to your situation. Even if you can’t do it the way you are thinking, they might have other alternative ways of buying that are at least as good, and perhaps even better. You’ll want some lenders on your investing team, now is a great time to start relationships.
Interesting question, very creative, please post what you find out.
Rental Property Investor · Inlet Beach, FL · Member since 2018 · 199 posts · 111 votes
5y
@Hernando Quintero
We did that with a home in TN to purchase a vacation rental in FL.
If you already have the HELOC established and can draw the money, you can deposit it into your account. That can help lessn paperwork in qualifying for a new mortgage because it will give credit time to update with the HELOC balance and payment (possibly).
Be honest though. When you come to the application Declarations, you should say "Yes" to Declaration H. "Is any part of the down-payment borrowed?"
Many people fear that answering "Yes" will disqualify them. And it can. It doesn't always.
In this situation, you are "borrowing" money from yourself (your asset). The concern with the underwriter will be that you can cover the payments for that debt (and all the other current debts) AND the new property.
What is so stressful for people is the logistics of when to draw the money, getting updated statements and balances, updating the credit report, etc. It's a little more demanding and rapid fire (if you aren't prepared) than using deposits in a bank account. There are some steps you can take in advance of making an offer that would make qualifying easier (less of a headache), but no guarantee. Underwriters are people too, and they have to make judgment calls from time to time. They aren't perfect.
Investor · San Francisco, CA · Member since 2020 · 31 posts · 22 votes
5y
@David A Lisowski thanks for the info. Very helpful. If FHA doesn't work I can copy your strategy.
I would be living/ hacking as primary home (duplex/triplex) which would qualify me for an FHA loan to lower the downpayment. In California a 20% downpayment is basically a house or two in most other places.
We did that with a home in TN to purchase a vacation rental in FL.
If you already have the HELOC established and can draw the money, you can deposit it into your account. That can help lessn paperwork in qualifying for a new mortgage because it will give credit time to update with the HELOC balance and payment (possibly).
Be honest though. When you come to the application Declarations, you should say "Yes" to Declaration H. "Is any part of the down-payment borrowed?"
Many people fear that answering "Yes" will disqualify them. And it can. It doesn't always.
In this situation, you are "borrowing" money from yourself (your asset). The concern with the underwriter will be that you can cover the payments for that debt (and all the other current debts) AND the new property.
What is so stressful for people is the logistics of when to draw the money, getting updated statements and balances, updating the credit report, etc. It's a little more demanding and rapid fire (if you aren't prepared) than using deposits in a bank account. There are some steps you can take in advance of making an offer that would make qualifying easier (less of a headache), but no guarantee. Underwriters are people too, and they have to make judgment calls from time to time. They aren't perfect.
I hope this helps.
You cannot use borrowed funds for FHA down payment. There is no exception to that rule. You can potentially use borrowed funds for down payment on conventional mortgages. I just used borrowed funds from a cash out refinance to fund down payment on a convention loan for a rental house. I closed on the rental house with 25% down, but $0 out of pocket.
Lake Oswego, OR · Member since 2020 · 58 posts · 24 votes
5y
@Hernando Quintero
You can use funds from your HELOC on a property that you own. No need to draw beforehand to deposit in your account. You'd be paying unnecessary interest on the funds if you do that.
Just disclose that your downpayment will come from the heloc and you’ll be asked to provide evidence of withdrawal later.
Also FHA is only for primary residence. So you would need to prove or convince the underwriter that CA will be your new primary residence.
Just saying you can work remotely now with covid might not work. They might ask you to get a written letter from your employer stating that you are allowed to work remotely indefinitely.
Underwriting concern is that post covid, you’ll have to return, making this a temporary primary residence during covid.
Lastly with the market being super competitor in CA, if your preapproval letter shows that you're putting minimum downpayment via FHA loan might not make it look as appealing as someone coming i. With 20% + down on a conventional loan. Just FYI.