Is it responsible to use a line of credit for a down payment?

[Denis Chenard]

I've recently gone down the rabbit hole of investing in real estate while attempting to join a friend as a partner on a deal. Sadly that deal did not work out. However, since  the opportunity has presented itself, I've been watching the BP podcast (on YouTube), and I read Rich Dad, Poor Dad, The Ultimate Beginners Guide, Richest Man In Babylon, and am now reading The Book on Rental Property Investing. All of this has made me realize that I want in the game ASAP. 

Now for the actual questions. I don't have enough cash saved up for a down payment and was planning on using my line of credit. Is this irresponsible? Should I work my tail off to build my saving prior to buying my first property?

Any advice would be greatly appreciated! 

Cheers.

[Linda Weygant]

Originally posted by @Allen Fletcher:

@Denis Chenard

Using a line of credit (LOC) is a strategy used by many investors to help finance real estate. As long as you have run the numbers and been conservative in doing so and the property meets your investment criteria, using a LOC is a viable means. HOWEVER, many lenders will not accept money from an LOC as valid capital to use for a down-payment. You need to figure out which lenders will accept that and work with them if this is the route you want to take.

Good Luck,

Allen Fletcher

Agree this is a legit method. Generally, what you will need to do is first draw on the line of credit and deposit those funds into your bank account. Those funds will then need to "season" for 30-90 days (check with your lender on their terms). Then, once the funds have seasoned and the draw (and required minimum payments) show up on your credit report, the lender will then use this as part of the DTI calculation to qualify you for the mortgage on the property.

Good luck!