Equity as collateral

[Seth McGathey]

In a recent BP podcast they discussed using your equity as collateral for your down payment instead of actually paying it. Does anyone have more info on this? What requirements are there normally? Is there any cons to doing this rather than a HELOC or cash out refinance? Would love to just dive deep into this concept.

[Joe S.]

Quote from @Joe Villeneuve:

Quote from @Seth McGathey:

@Jaycee Greene yes they did discuss it being cross-collateralized. I just was wondering what the pros/cons would be in going this route. 

The problem with it is you are tying up two properties with that Equity loan.  This means if you were to sell the first property (the one with the equity loan), you eliminated the collateral on that equity loan, so the end property could (and probably would demand full payment on that loan.  If you sold the first property that should cover it, but there is also a chance the 2nd property could call both loans due.
If you chose to cover two properties with one loan, that locks both properties together as collateral, which means you really can't sell either property without selling the other since they are tied together as collateral.

 Sometimes you wonder if the folks doing the podcast actually ever done what they’re telling others about.🧐