HELOC ? Credit Cards? FICO 2nd Rental Property - NEED ADVICE

3 Replies

I'm looking to buy my 2nd rental property, but have some financial questions.

1. I own my own home and can take about $13,500 for a HELOC to use as a down payment.

Q - If I do this, and then try to get a bank mortgage (from a different bank), are they going to see the HELOC and get scared from giving me a loan? (eg. too much debt).

2. I have one credit card with an APR of 22%. I've got a 4K line. Through my credit union, I can apply for a 9.9 fixed credit card.

Q - If I apply for the lower rate card, should I keep the high interest card I have or close it? What would look better on a credit score?

3. I own one triplex, and own my home. 

Q - Is getting a HELOC fo fund most of the down payment on a 2nd rental property a good idea? or a foolish one?

Anyone who can offer advice is greatly appreciated for this newbie!!

@Ryan K. 1. First ask your lender what they think. If your credit is good and your debt to income is good I dont imagine that a 13k loan will make any negative impact on you qualifying for the loan

2. I think actually if you are getting a loan right now then I wouldnt open up any new credit except for the Heloc.

3. Great idea as long as the numbers make sense. If you are buying a loser property then regardless where you get the down payment it is still a loser property. As always make sure each property will sustain itself and positive cash flow.

@Ryan K.

1. Banks do not typically look down on HELOCs as they are secured funds. Whether or not they impact your debt to income ratio negatively is another story. But the payments are interest only and a payment on $13,500 is going to be fairly nominal. 

2. I would stop applying for cards right now if you are trying to get a mortgage. Two main reasons - first to stop excessive inquiries on your credit and also to not draw on an unsecured line of credit for funds. If a bank sees deposits in your account that are from an unsecured line of credit/credit card, they will not count those funds for underwriting. 

3. Again, secured lines of credit are good. Those are a completely legit source of down payment. I would imagine it is going to be easier and cheaper to get one on your owner occupied home rather than an investment property though. 

1. HELOC is a second mortgage on your house and if you plan to get it - first lien holder definitely will know it, most likely before you even close on it.

2. You should not apply for any credit right now: 22% and low limit $4K tell you than you have to work on your credit first. If you plan to build your rental business on credit, you need first establish at least 4 credit lines for 7 years and pay everything as agreed.

When you start receiving 0% offers for 12-15 months - you know you're getting better.

The higher your limits on credit cards - the more banks trust you. If you're spending credit card and don't pay it off every month - you're paying interest plus fees. It might make your rental unprofitable 

Credit cards combined with HELOC is a great tool for financingbut you have to establish your credit first to play this game. You should have limits 10-15K at least and offers with 0% for 18 month. Right now my credit cards offer 0% until Feb 2020 - it means I can buy a house for cash, update it and refinance in 6 mo after my Tenants moved in

If you want to pay such high interest on your rentals, it's much better to find a hard money lender then.

When you utilize credit card close to 100%, your FICO will drop really bad. Not good move