Borrow for Down Payment

10 Replies

I'm eligible for a loan from Lending Club for $24k. Can I use this money as a down payment for a conventional product/hard money skin in the game? Or is there some rule that bans borrowing for a down payment?

I'm doing it right now along with hard money for a flip.  It's going pretty deep, right?  Kinda scary, and also a pain to have to start making installment payments right away.  But if you're serious, then do WHATEVER IT TAKES to make it happen!

Yes you certainly can do that.  The interest rate can be quite high though depending on your credit.  If I remember it correctly unless you reach 100% funding you get nothing.

Just keep that in mind as well.

It's a very viable option that I know a few people in the BP community have done.

Prosper.com & Lendingclub are great ways to raise capital for a down payment.  Ensure you have money to cover your payments and depending on your credit rating the interest rate can be quite high. Just like @Vida Novac stated do whatever it takes to get started  and make sure you do your due dligence. 

I am also looking to borrow funds for a down payment. I plan to figure the cash flow on a buy and hold to see it make sense. PITI plus an additional loan could make this a bad deal ..demanding to interest rate from the down payment source.

Assume my PITI $600.00 , Down Payment Loan Payment is $200.00 and the rent is $1200.00 The property would cash flow $400.00 monthly.


Wouldn't borrowing the down payment make sense?

Walter

@Erik Browning

For conventional financing this really wouldn't work, as it states right on the loan application "is any part of the down payment borrowed?".  They'll pull your credit and see you have loan with Prosper / Lending Club and also will ask documentation on where the down payment is coming from.

For HML, it could be fine, you may just have to shop around a bit.

Good luck!

- Tom 

Many of the answers on here aren't correct. In regards to a bank loan (conventional, VA, FHA) the down payment can not come from a borrowed source. You can take out of your IRA, 401k or have it gifted to you but you can't borrow from Lending Tree for example and use it as your down payment.

In regards to HML, if you are upfront with them many of them wouldn't accept borrowed money either as your skin in the game. Borrowed money (on top of borrowed HML money) shows lack of financial resources necessary to rehab the house especially if times get rough. Some may not care but I know mine definitely would. Also if you borrow $25k on a flip and use hard money, you are sinking into a deep hole. You would have to make $50k just to make that deal worthwild and make $25k. $50k deals aren't rare but aren't all of the place either in my market so I would be really careful about doing it and would run my numbers on a waste case scenario to make sure I am making good money. Nothing like doing a flip for it to sell 6 months later to realize you made little to no money.

Yea.....borrowed money for any type of traditional funding DP won't fly. You MIGHT find a HML willing to do it, but it better be a damn good deal with HUGE margins.

Sure you can. I have done that too. However, caution here: you need to ensure that it cashflow supports  principal+interest+taxes (+PM if not self managing) for the morgage and the loan repayments..

good luck

Originally posted by @Vida Novak :

I'm doing it right now along with hard money for a flip.  It's going pretty deep, right?  Kinda scary, and also a pain to have to start making installment payments right away.  But if you're serious, then do WHATEVER IT TAKES to make it happen!

 I am doing exactly the same, and I said "I'LL MAKE IT HAPPEN!", It's good to know that I am not the only one doing this.

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