Is it a good idea to use a personal loan as down payment?

Question

Hi everyone,

I'm new to real estate investing and I'm trying to think of different creative ways for financing my first investment property. I would like to invest Out of State but I don't have enough money for a down payment for a property. I know that for an investment property, you would need 20% down. I don't want to save up money for a down payment because that could take forever for me to come up with the money. I was thinking of using a personal loan as a down payment, and then using a DSCR loan. Is this a good strategy for financing???

Erik Estrada · Answer

There is a few ways to do "100 % Financing" using a DSCR Loan

1. A Gift Letter

2. Using a HELOC from your primary to fund the additional 20%

3. Doing a Cash-out Refinance on your primary to fund the additional 20%

A personal loan won't work. On top of that you are jeopardizing yourself with a much higher interest rate if you do take on a personal loan.

Suzanne Player · Answer

To take a personal loan for a downpayment when you don't own your primary & don't have the cash reserves is an incredibly risky move, I wouldn't do it.

But what about house hacking?  If you are on Long Island, believe it or not, you can still find coops for under $200,000.  Perhaps buying a 2 bedroom coop & getting a roommate would work for you?  If not, perhaps a studio or 1 bedroom to start?

Have you looked at New York's first time homebuyer programs, SONYMA?  ("Sunny May")

Ex: Today's downpayment assistance program: 5.625%, 10/1 5.375%, as low as 4.875% depending on the program (as quoted by a mortgage rep this morning who does these type of loans)There are a bunch of them, here's the link:  https://hcr.ny.gov/sonyma

The rates tend to be lower, you must be a 1st time homebuyer (looking at your last 3 years' tax returns which they ask for)

If you haven't talked to a mortgage pro already, you will definitely get a lot of great information by talking to at least 3.  If you'd like some references for experienced mortgage bankers/brokers please feel free to message me any time.

Good luck, & keep us updated on your search :)

Mohammed Rahman · Answer

Hey @Mohammed Milord - I advise against a personal loan, that would screw up your DTI, your credit, monthly cashflow, etc. and a slew of other things.

It may be most prudent to just save up more money OR look at cheaper options.

Where are you looking and what's your budget? I can point you in the right direction. Feel free to DM me, thanks.

Basit Siddiqi · Answer

Interest on a personal loan used to fund a down payment may be additional deductible interest.

Erik Estrada · Answer

In that case you would need to own at least a primary residence. Most investment property lenders do not lend to first time homebuyers.

Is it a good idea to use a personal loan as down payment?

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