Is it a good idea to use a heloc to fund down payment.

3 Replies

A HELOC will allow you to get up to around 90% Loan-to-Value with some going higher. A HELOC is just a line of credit you can charge off and payback so your balance can remain low as well as your payments. A HELOC has a draw period of 10 years so you can repeatedly use the HELOC and pay it back for 10 years. If you used this for a down payment on a rental and get the property cash flowing you can pay back the HELOC and use it again for another rental or anything else. A HELOC is an adjustable payment and generally the rate is about double that of a Owner occupied refinance. Once you have hit end of the draw period your property should've gone up in value and you will be able to get a new HELOC for a higher amount.

A Cash-out refi on a owner occupied will only go up to 80% LTV. The Cash-out refi is a one time pull on your equity so you will be getting the higher payment and slightly higher rate than a no cash-out refi right off the bat. A Cash-out Refi will have a lower rate than a HELOC and will only be one single payment.

A HELOC is a great option for investors I personally am just always wary of a second payment especially with a higher rate and adjustable payments. However, the HELOC is far more flexible than a Cash-out Refi since it is reusable and you can pay it back with a cash flowing property lowering your overall payment on the HELOC. What it comes down to is what you are comfortable with and think will work best for your scenario.

Best of Luck!

Not a bad Idea but there is still risk.

As long as you have a solid plan.

Anyone who tells you that taking a line of credit against your current home is free of risk is lying.

If things don't go as planned you have just tied your primary home into the mix.

That is definitely exposing yourself to some risk. Especially with the market as hot as it is, that's pretty leveraged up. If you find a can't-miss deal, it could make sense. I just wouldn't reach if a deal isn't there. Best of luck!