Has anyone used HELOC as a down payment for investment property?

Question

I am looking to use the HELOC to take the equity from my primary residence and use it as a down payment for an investment property. I am not in a position to use the investment property as my primary residence to house hack so I realize that the interest rates will be less favorable.

Has anyone made a deal work using a HELOC as a down payment for a buy and hold property?

How difficult was it?

Jay Hurst · Answer

Leverage can be a great tool. But, you have to understand it and account for it and always have a plan to pay it back. Line of credit are great for short term borrowing, but not a great tool for long term use like a down payment.

Denis Ponder · Answer

Just make sure the cash flow can cover the HELOC payment as well.  Typically a HELOC is a better fit for a flip/BRRRR type of scenario so you can pay the HELOC off/down much more quickly.

I have used our HELOC in both scenarios.

Jay Hurst · Answer

1. if you have w-2 income, good credit and a good amount of equity HELOC's on primary are not difficult to get. If you do not have a job, bad credit or not enough equity then you will not get one.

2. A DSCR loan is one vehicle for buying your next property but is not that the preferred route if you have a W-2 job (like your profile says). A DSCR loan will just up your cost on the new loan, making the deal that much harder to cash flow, so it would be a last resort.

Jay Hurst · Answer

@Thomas W.    Sure, people do it all the time. and getting a HELOC on primary home is not terribly hard as long as you have enough equity. So, yes, it can be and is done. HOWEVER, you do need to understand the downsides to it. You are effectively leveraging  the new purchase up at 100%.  So, you have to account for the HELOC debt payment along with the debt on the new house into your cash flow numbers. In addition, HELOC's are interest only and variable rates. You will eventually have to pay back the principle of the line of of credit. What is the plan for the that?

AJ Wong · Answer

HI Thomas. I have a property in contract that the downpayment (10% of $695k) was sourced from a HELOC on the buyer's primary. This is almost aways permissible as a source of down payment funds. Many HELOC or second mortgages are fixed interest rates and depending on the loan amount, even offer 100% online and no appraisal requirement for issuance. Surprisingly easy and also available for investment properties.

Reach out to @Joseph Chiofalo for help with structuring and simultaneous closings. They have some low down payment 1-4 unit investor programs that can reduce the cash needed (equity line amount) to close. Also a seller concession is a good tool to reduce closing costs and carrying more than necessary on the primary.

Good luck!

Thomas W. · Answer

Yes, I'm fairly risk averse so taking on a HELOC long term is daunting.

Jacob Sherman · Answer

Line of credit is a full doc product

The DSCR is a limited doc product

Warren Powers · Answer

@Thomas W. The difficulty in this strategy is getting the numbers to work at essentially 100% financing. I have done this in the past, but nothing lately with current prices and rates.

Thomas W. · Answer

Could you expand on this:1. Why is getting a line of credit difficult? 2. What do you mean by getting a DSCR loan? Is this in addition to, or in lieu of getting a HELOC to finance the downpayment?

Has anyone used HELOC as a down payment for investment property?

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