Using a HELOC for a down payment

9 Replies

I recently opened a HELOC on my personal home in hopes to use some of that money for a down payment on a rental property. I have been looking at various properties in my area (single family) as potential investments. My question do I use my HELOC for the down payment on the property initially and then refinance the property later and pay that HELOC back off. I’ve been told that this can be done. Is this possible? What stipulations are there for this to work? I’m a new investor and any help I could get is appreciated.

Hello Matthew,

First you will draw down the required funds from HELOC and deposit in your bank account. Depending on the equity position in the property, you may be able to refinance with a local community bank or protfolio lender that does not require value seasoning, therefore refinance based on fair market value of the property and cash out original down payment funds to pay back the heloc.

I just used a HELOC on my primary residence to fund the purchase of a duplex.

Start searching for an investment property, but create a max budget based off of the HELOC you received. You will be required to put down at least 20% for your next purchase. If you are good with calculating renovation costs, than you can keep your margins narrow, but if you don't have that much experience, leave yourself enough left over capital in the HELOC for costs.

For example: If you received a HELOC for 50k than you want to keep your purchase price of an investment property around 180k. This will leave you 14k for closing costs and renovations.

The trick would be finding a property that you can add a significant amount of sweat equity to, and buying it for less than market value. 

Hi Matthew,

You can use cashout refi on your investment property to get the difference between appraised value of the property and your existing loan balance. for this to work, your property would have had to increased in value, and few months of seasoning (usually like 6?). Once your property value appreciates, you can refi out and get cash differential. Note that when you do this, your mortgage on your investment property will now be higher. make sure your cashflow from that investment property still can cover the monthly mortgage! Hope that helps. For more info, you can refer to BRRRR Strategy

@Matthew R Mofield

There is no zero down conventional mortgage anymore. When you refin banks prefer you have >20% equity left to account for market valuation drift. I believe you need to buy insurance which can cost you $150-500 a month.