Using parents' home equity as a down payment — anyone done this?

Question

Hey everyone, looking for some guidance here.

My parents have significant equity in their home and we're exploring either a cash-out refinance or HELOC to use as a down payment on an investment property ($500K+ range).

I know not every lender is comfortable with this structure so I wanted to ask — has anyone done something similar? Would love to hear how you navigated it or get a referral to someone who specializes in this.

Thanks in advance!

Ken M. · Answer

It may be tempting, but parents get old and eventually need security. Having a HELOC is not security. A lot of people lost their homes in 2008 because of making assumptions that were wrong. Lots of wrong assumptions in real estate. Just read Bigger Pockets.

I wouldn't proceed.

Just use creative financing where the risk is transferred to the seller. Avoid the drama.

Chris Seveney · Answer

Many lenders will be very cautious whether it is a gift or a loan from the parents. If it is a loan, they will not finance you. If it's a gift, they still might not approve the loan. There are also other comments on here that you should at least consider. I know an individual who did something very similar and ended up losing the property to foreclosure. The parents, while providing that money, thought that it would still be there later on for themselves when they needed it, which was not the case.

Henry Lazerow · Answer

I have lots of younger clients whose parents help them out with downpayment on the first property. You just have them pull the HELOC and give you the cash, no need mention it was from a HELOC. But as others mentioned HELOC is short term money with a variable rate, most gift funds are just cash or from a cash out refi, etc.

Michael Avugwi · Answer

No it's to purchase rental properties.

Chris Seveney · Answer

I am unfortunately dealing with one right now, property been in family for over 50 years along with two adjacent parcels (that I am not affiliated with), child was supposed to be paying and was not and parent also on deed and mortgage - they got fc notice and am like wtf. The child has over leveraged all three properties (has multiple loans behind ours) and its awful and a disaster.

Michael Avugwi · Answer

This is for us to purchase a multifamily property. We can get about 230k and use it as a down payment

Theresa Harris · Answer

Is this for your sister to buy a home with the two of you on title?  If so, is there a reason the two of you can't come up with a down payment?  If you own other homes (guessing everyone in the family is on title for those), why not pull money out of those?

Using parents' home equity as a down payment — anyone done this?

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