Can you get an Equity Loan and use it as down payment?

Question

Can I get an equity loan for my current home and use the money as a down payment when purchasing a new home?

How high are interest rates on equity loans?

Devin Peterson · Answer

I would reccomend that you do some number crunching first. Make sure that wherever you are placing the funds makes you more than it would cost you to pay for the fully drawn amount. I.e, if you intend to use for purchase of a new primary home, youd have to make sure your lender doesn't have any seasoning requirements with heloc funds and your primary is not a cash flowing operation, its just more debt. Furthermore, a lot of inv banks are shying away from HELOCs as fund to use for a purchase unless they have been drawn and placed into a checking account for at least 90 days. I would vet this scenario out further with the lender you intend on using for directly for the purchase. GL.

Ned Carey · Answer

@Jane Kai theoretically yes, but read the previous posts about potential warnings.

It may affect your Debt to Income ratio (DTI) It also may mean you are taking a lot of risk with too much leverage (debt)

Brittany Minocchi · Answer

You CAN, but it depends on a few things. Are you pulling equity from a primary home or investment, and is that being used on a primary home or investment? Property types, loan types, lots of factors will come into play.

Because HELOCs and HELOANs are typically second position, they’re a higher risk and therefore carry a higher rate compared to a first position in many cases.

Happy to take a look and see if it would make sense for your situation.

Matthew Crivelli · Answer

@Jane Kai

With rates as high as they are I don't think taking two loans to buy one property would be a sound financial decision. Also what type of loan are you trying to take when you purchase the property. You can't really use a HELOC for a down payment on a long term loan. The only time this work is if you are trying to purchase a fix & flip or similar short term situation. Still in this climate, its huge risk. Worked better when rates we at 3%.

Can you get an Equity Loan and use it as down payment?

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