I plan to purchase & hold my next investment property. I will apply for a loan that requires 20% down. At the same time I would like to apply for HELOC on primary residence to pay for that down-payment.
Will that work? I'll deal with portfolio lenders, not big banks. Should I apply for max I can get or just the amount that I need? I heard that not used line of credit still can work to my disadvantage (i.e. 100k LOC where only $20k is used still shows $100k).
Any advice will be appreciated.
I've actually done this myself, That is, I took out a HELOC (the MAX) on my residence. (The money was so cheap (%0.99 first year) that it just made sense - HELOC via credit union.) I'm only charged interest on the amount I actually use. For example. if my HELOC is for $100K and I only draw $20K, I'm charged interest on the $20K. However, the $80K is still there for me to use.
It can definitely be done. You will want to have the HELOC taken out and all set up ready to draw from. Then you can move forward with the purchase and withdraw the money right before closing. The lender will need to verify the minimum payment due after you have withdrawn the cash to bring to closing, and use that in your debt to income ration. I would recommend getting a credit line for as much as you can, as the lender should only take into account the minimum payment due each month towards your DTI, not the minimum payment if the line was maxed out. However if you get a small credit line, and max it out it will hurt your FICO the same as maxing out a credit card, possibly more since it is a lien on the property.
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