HELOC/HEL for down payment or Owner Occupy first Duplex?

5 Replies

Hi all,

I bought my first home 2 years ago for a great deal and so my current LTV is roughly 74% on this home, valued at 225K. I'm looking at investing in a duplex or triplex in Allentown ($120-$160K) and struggling to make some decisions...

I only have about $18K available in cash, so I've come up with 2 options. 

1. Find a place that I can owner occupy and get an FHA loan with 3.5% down or conventional with something less than 20% down.

2. Get creative and cash out refinance, or get a HELOC, or HEL on my current property to free up between$13-$25K cash (at a price). Then finance the investment property at 20% down, which I'm finding is the absolute minimum if not owner occupied.

I know I can make the live-in/house hack option work financially, but I'm not sold on moving to Allentown... I love the house I'm in now. So I'm curious about Option 2. Can I take out a HELOC or HEL or Cashout Refi to get more cash on hand? Once I do that though, my Debt to Income ratio becomes something like 37-38% (dang student loans). Will I even be able to get a mortgage with a DTI that high? I don't want to shoot myself in the foot by taking out this line of credit.

@Christopher Bongo

Welcome to Biggerpockets!

Allentown is a great area to invest in. Being that you work in the area makes it a no brainer that you should also invest in the area.

The great thing about real estate is that the industry is very creative and many investors got rich using different strategies. 

If you do a cash-out refinance - you may have to pay a lender origination fee and an appraisal. I think the HELOC may be cheaper. However, both are options to free up additional cash.

$18,000 of cash should allow you to purchase an investment property for $60,000 - $65,000 in Allentown(20% + closing costs).

Pulling equity from your home should allow you to have more purchasing power.
Ultimately - you should reach out to a lender to see how much you can borrow. DTI, gross income, credit score all play a factor in how much you can borrow.

You may want to reach out to @David Ribardo . He is a real estate investor and agent in the area. 

He can give you more insight and numbers in the area.

I am also a real estate investor in the area if you have any questions.

Good luck in your real estate investing career!

@Christopher Bongo , If you move to Allentown and house hack, what would you do with your current home? Would that work as a rental, or could you sell it for a profit?

One other option to look into would be USDA financing. They have a multi-family program which could allow you to purchase your next investment property with very little cash out of pocket, as long as it is in a rural area. This wouldn't work in Allentown, but anything more than a few miles north of Rt. 22 would qualify. https://www.rd.usda.gov/programs-services/all-prog...

I would be careful not to over-leverage yourself at this stage in the game. If the market takes a turn or your next deal doesn't go as planned it would be very easy to get upside down on your property and have trouble making ends meet. You should talk to a loan officer to determine eligibility. Most big banks will follow FHA guidelines, but some of the local banks / credit unions have more aggressive products and can lend with higher LTV or DTI limits once you have some experience.

Thank you @Basit Siddiqi and @David Ribardo ,

I think renting my current home would be the most logical way of doing this. And if not over-leveraging myself means moving to Allentown for a year, that make total sense. 

Do you have any lenders in the area that you would recommend talking with? I don't quite know where to start looking. Internet search? Networking? 

Save 10k , buy a 90k duplex :D

I think if you start buying lotto tickets sometime next week, you should be able to raise 10k within a few months or so

Hahahaha hi Mark. You're right...I have been feeling lucky lately.

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