A hard money alternative you may not have considered

13 Replies

Hi BPers - figured I'd share my recent success finding ~100k in financing using a method I haven't heard discussed frequently.

Believe it or not, there are several banks out there that will give you a personal line of credit based primarily on your credit score and income. Think of this as a big credit card with much lower interest (my LOC's are in the 9-11% range). For those of you with W2 incomes and good credit, this can be a great alternative to hard / private money for a few reasons:

1. No points! Although the interest rates are similar (if not slightly below) hard money, saving on points can be huge. 

2. A line of credit means you're only paying interest based on usage. If you need to draw for unexpected capex expenditures or cover part of your downpayment as a bridge until you sell or refi, this is a convenient way to manage working capital.

3. While the application process can mean a lot of paperwork (especially if you want to count rental income in your DTI calculations), the closings are a breeze, and you won't pay the closing costs associated with secured loans that involve collateral recordings, attorney fees etc...

So far I've been able to secure personal LOC's with Citizens Bank, Santander Bank, and Key Bank. Others that I've checked offering similar programs include Wells Fargo and Suntrust, although I wasn't able to apply based on my location.

Hope this helps and let me know if you are able to take advantage of one of these programs!

@Ralph Spencer Steenblik high 700s / low 6 figures / citizens, key, and santander so far. Have an app in with United Federal Credit Union as well. 

@Melissa Kirchhoff no problem! Let me know if I can help at all. 

@Kenneth Williams good luck Kenneth and let us know how it goes.

@James E. I am looking into doing this as well. I have solid credit and steady income. Were you using the LoC to pay cash for a house that was below market value and then cashout refi soon after and pay off the LoC? What kind of interest rate are you getting?

@Kyle Wenger more to fund rehabs and partial amount of the down payment for places I can get traditional financing for (which I then either flip or do a cash out refi after 6 months to pay off drawn amount of LOC).

Avg rates have been in the 9-11% range.

@James E. this is excellent. I never thought of this method. I'm going to do some due diligence into this and see what opportunities for LOC I can drum up. I have a long term banking history with Wells Fargo and they were on that list of banks. I'll check out the rest of the banks. I'm seeking to do value add investing with my partner since I have the stellar credit but he is a skilled GC and purchase distressed properties that fit the BRRRR method.

Hi James, good subject, I did this awhile back, i ask my bank for a line of credit on two properties  , mortgage free, and 50% equity on my primary house, but since I have not been working I couldnt get it line of credit aproved, i do have a 401k and thinking in roll over to a self direct ira, but can i use that instead to build a triplex in one of my properties .

This is true and not talked about enough. It's definitely something investors should look into.

Thanks for sharing with us @James E. ! I've actually been recently exploring this option. Just a question regarding the DTI, I assume this LOC would impact my DTI so, how would this then affect my ability to acquire conventional loans when purchasing or refinancing?

@Yanier Au yes this is a good point. On the plus side, the payments are typically interest only so as a dollar amount they aren't as large as a fully amortizing loan, meaning you have less debt coverage counting against you then in comparable scenarios. You should be able to model this out on a spreadsheet fairly easily to make sure that your new debt service doesn't bring you too close to the DTI requirements of your lender.