Philadelphia, PA · Member since 2017 · 140 posts · 37 votes
I have heard so much about people successfully using HELOC as a down payment for investment property. Decided to do the same. We owe 95K on our primary residence, wich is valued around 200k. Went to the bank today, the same one which we have our mortgage with. Before applying I decided to ask if I could use the HELOC for down payment on an investment property. Here was the answer " Technicaly, if you were to disclose to us that you are going to use HELOC for investment purposes our rules are that you can't use HELOC for that"
So here is my questions. How do you interpret that answer?
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
8y
I interpret that answer as "It's only a problem because you're yapping about it!".
It is technically against the rules for most larger banks, as it can cause some lenders to worry as downpayments are supposed to be cash to increase equity, using borrowed funds defeats this purpose. That said, no one cares what you use it for as long as you meet underwriting requirements. No one will say anything if you don't and it's done every day.
Lender · Newark NJ · Member since 2017 · 56 posts · 28 votes
8y
Sounds like that is their personal policy. There are many lenders that will allow you to use your HELOC. just need to figure out what your payment will be on it to figure out the debt to income ratio.
Philadelphia, PA · Member since 2017 · 140 posts · 37 votes
8y
Yes I understand the DTI ratio part. Just don't know how that works. Let's say hypotheticaly, I opened up a HELOC with no specific purpose or with remodeling of my primary residence in mind. But then down the line changed my mind and now want to use it to purchase an investment property. Do I have to specify the reason of that draw to my HELOC holder?
Sounds like that is their personal policy. There are many lenders that will allow you to use your HELOC. just need to figure out what your payment will be on it to figure out the debt to income ratio.
Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
8y
Originally posted by @Account Closed:
I have heard so much about people successfully using HELOC as a down payment for investment property. Decided to do the same. We owe 95K on our primary residence, wich is valued around 200k. Went to the bank today, the same one which we have our mortgage with. Before applying I decided to ask if I could use the HELOC for down payment on an investment property. Here was the answer " Technicaly, if you were to disclose to us that you are going to use HELOC for investment purposes our rules are that you can't use HELOC for that"
So here is my questions. How do you interpret that answer?
Lender · Newark NJ · Member since 2017 · 56 posts · 28 votes
8y
I've never been told that you need a specific reason and I even double check with colleagues in my office. as long as the DTI is in line then it should matter what you use it for
Investor · Normal, IL · Member since 2017 · 89 posts · 75 votes
8y
Well, I just did that exact thing. I went to my primary bank first (a major bank), and I got the same answer. I went to a small local bank, and they let me do it. Try a small bank.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
8y
I interpret that answer as "It's only a problem because you're yapping about it!".
It is technically against the rules for most larger banks, as it can cause some lenders to worry as downpayments are supposed to be cash to increase equity, using borrowed funds defeats this purpose. That said, no one cares what you use it for as long as you meet underwriting requirements. No one will say anything if you don't and it's done every day.
Philadelphia, PA · Member since 2017 · 140 posts · 37 votes
8y
Understood:-) thank you everyone for your replies. I won't be "yapping" anymore :-) And going to look into smaller local banks just saying "I would like to apply for a HELOC"
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
@Account Closed, afaik, the same Lender would be fine if you told them you wanted to take out a maximum HELOC so you could "invest" it at the casinos during in Las Vegas. Sheesh...
Seems like they don't like the idea that you might make more money out of your HELOC than them?
They issue Credit Cards without requiring to know how you'll spend on it. HELOCs are SUPPOSED to be similar!
[You'll already have proved that your income is sufficient, and your home has ample additional equity, right?]
@Account Closed, afaik, the same Lender would be fine if you told them you wanted to take out a maximum HELOC so you could "invest" it at the casinos during in Las Vegas. Sheesh...
Seems like they don't like the idea that you might make more money out of your HELOC than them?
They issue Credit Cards without requiring to know how you'll spend on it. HELOCs are SUPPOSED to be similar!
[You'll already have proved that your income is sufficient, and your home has ample additional equity, right?]
I have not provided them with any documents. As soon as they answerd my question, I just thanked them and left. But yes I should qualify for the HELOC, as far as my income, DTI and equity go.
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
8y
That was a good answer. 'Well if you insist on telling me the purpose of this money is to buy another property, then I have to tell you no. However, if you don't tell me about what you're going to do with it, you are approved.'
Rental Property Investor · Springfield, MO · Member since 2017 · 266 posts · 312 votes
8y
I use a HELOC to buy all my properties. It allows me to make a cash offer and saves a lot of money on closing. It also makes the sale go through faster. I have never used for a down payment so that might cost you more in the long run as HELOC loans have a higher interest rate. I suggest finding a property you can use the HELOC for and pay cash. If you need to rehab, take out a 6 month loan with hard money and pay it first. Good luck!
I have heard so much about people successfully using HELOC as a down payment for investment property. Decided to do the same. We owe 95K on our primary residence, wich is valued around 200k. Went to the bank today, the same one which we have our mortgage with. Before applying I decided to ask if I could use the HELOC for down payment on an investment property. Here was the answer " Technicaly, if you were to disclose to us that you are going to use HELOC for investment purposes our rules are that you can't use HELOC for that"
So here is my questions. How do you interpret that answer?
how about spend 2-3 months to save all money in your checking account for down payment? Use Heloc to pay all bills.
We are, for now, only interesteded in duplexes in NE Philadelphia wich require about 60k for down payment. That's a lot of months of savings. Besides I want the money to be available fast in case a good deal comes my way. There are very few deals there and they are being snached by cach buyers or FHA borrowers , who don't mind offering way over asking price , since they only have to put like 3% down.
Investor · Cleveland, OH · Member since 2015 · 6k+ posts · 2k+ votes
8y
@Account Closed, I've read elsewhere that if you get approved for a (say) $70k HELOC, it might be wise to withdraw ALL of it straight away (into an account with an Investor-friendly Lender), even before you've found any deal. That way, after two-three months it's seen as a "seasoned" deposit, so should not create any red flags when you ask for pre-approval for the balance you'd still need to borrow. As always, don't disguise the facts if asked, and make sure your DTI would still be ok.
Developer · OAKLAND, CA · Member since 2013 · 29 posts · 10 votes
8y
We got a heloc from a credit union bc they offer the highest LTV in our area. They don’t care what you do with it - College, vacay, appreciating assets they generally don’t ask. We’re using it to build an in law full out so not sure how a lender on the purchased mortgage would view down payment from a loan.
Rental Property Investor · Philadelphia, PA · Member since 2014 · 240 posts · 94 votes
8y
One other option to consider. You don't have to disclose the source of funds if the transfer in the account is not within the window that you have to supply the lender with bank statements. So, in theory, you could take money out of the HELOC and put it in your account for 91 days. Then you will have 3 bank statements showing you have it in your account. This would simplify your life.
In general, my rule with the banks is to make the story simple and easy. They don't like complex things.
Philadelphia, PA · Member since 2017 · 140 posts · 37 votes
8y
Originally posted by @Account Closed:
One other option to consider. You don't have to disclose the source of funds if the transfer in the account is not within the window that you have to supply the lender with bank statements. So, in theory, you could take money out of the HELOC and put it in your account for 91 days. Then you will have 3 bank statements showing you have it in your account. This would simplify your life.
In general, my rule with the banks is to make the story simple and easy. They don't like complex things.
In that scenario, which type of HELOC woud you take: fixed, floating or internet only?