Can't use HELOC to pay for part of my down payment?

Private Lending & Conventional Mortgage Advice
10yFollow

Can't use HELOC to pay for part of my down payment?

Luis Nunez
Los Angeles, CA · Member since 2016 · 4 posts · 0 votes
Hello, I'm from southern CA and just got transferred to Houston, TX. I'm keeping my primary residence as a rental and buying a home in TX to use as my new primary residence. I need about $17K more to come up with the 20% down payment on the home I want to buy ($50K total down), so I was planning on using a HELOC from my current home to come up with the $17K. I have about $250K (50% LTV) in equity on that home but the lender I'm working with told me I can't borrow any of the money for the downpayment, so I have to go with a FHA loan instead of a conventional. Is that correct? Thank you in advance for all of your help!
0Reply
18 views

Most Popular Reply

Denny Robert
Rental Property Investor · St. Louis, MO · Member since 2013 · 194 posts · 100 votes
10y
Ask a new lender. That doesn't sound right to me.
1Reply
See this reply in the discussion

7 Replies

Jump to latestLatest
  • Denny Robert
    Rental Property Investor · St. Louis, MO · Member since 2013 · 194 posts · 100 votes
    10y
    Ask a new lender. That doesn't sound right to me.
    1Reply
  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 642 votes
    10y

    You can borrow against an asset. You cannot borrow any unsecured funds. A HELOC is borrowing against an asset, so you should be fine. Could be an overlay that they have??

    [email protected]
    Stephanie Medellin, Loan Factory58 Reviews
    WebsiteView Page
    1Reply
  • Luis Nunez
    OP
    Los Angeles, CA · Member since 2016 · 4 posts · 0 votes
    10y
    Thank you both for your replies! I will be contacting another lender ASAP.
    0Reply
  • Shaun Weekes
    Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
    10y

    @Luis Nunez

    Your HELOC can be 100% used towards a down payment. You'll need to provide a final HUD showing the disbursement to your checking or savings account. This is pretty basic and simple to get around. As mentioned earlier this is probably an OVERLAY.

    0Reply
  • Jonathan Williams
    Investor · Houston, TX · Member since 2015 · 30 posts · 36 votes
    10y

    @Luis Nunez First off, it should be obvious that if your HELOC is your partial source of a down payment, then the lender will have to account for that in your debt-to-income ratio. By drawing from your HELOC, you have given yourself a new liability. So the bank essentially has to "re-approve you" if I would guess.

    But your lender saying you "can't borrow money" even from yourself, now that sounds a bit crazy as long as the banks parameters are satisfied. What type of loan are you pursuing? Just a plain-vanilla conventional fixed?

    1Reply
  • Luis Nunez
    OP
    Los Angeles, CA · Member since 2016 · 4 posts · 0 votes
    10y
    Hey Jonathan, Yes...I'm just trying to secure a conventional loan for $300K. I have excellent credit and steady, verifiable income. My current primary home is at 50% LTV so I can do a smaller HELOC (no more than $20K needed). Thanks!
    0Reply
  • Greg H.Pro Member
    Moderator
    Broker/Flipper · Austin, TX · Member since 2013 · 4k+ posts · 4k+ votes
    10y

    My guess is this is just about semantics more than anything else. If you have already accessed the HELOC and the funds are available in your account there is no issue as long as you meet the debt to ratio requirements. If you indicate you are going to borrow the money via a HELOC prior to closing, the underwriter could consider this borrow in the down payment and not readily available funds

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free