Using Gift of Equity, FHA loan, then HELOC?

Question

Hello, I am brand new to real estate investing and coming accross Bigger Pockets has been the best thing for me. I have a plan I'd like to execute but I need to make sure it's possible. If anyone could lend some insight I would be so grateful.

WOULD THIS PLAN WORK: I receive a home with a "Gift Of Equity" and then use my own money for the down payment on an FHA loan, would I be able to utilize the Equity to take out a HELOC to buy a second property?

Albert Bui · Answer

It depends on the guidelines for that HELOC, will they go off the purchase price + rehab, purchase price only, or off ARV, or only off ARV after 12 months seasoning, each lender will be different on this and can vary.

If you your gift of equity is large enough, IE you're getting like 20-40% gift of equity and your LTV on your mortgage is 60-80% LTV then you may be able to get a HELOC up to 80-90% of the difference of the allowed value (based on HELOC's guidelines) minus your 1st mtg. This gap of difference, is your max HELOC Line amount that they'll extend to you. If you plan it right this HELOC sizing will be sufficient to buy your upleg deal that you're hoping for.

I've done a few transactions with Gifts of equity.

Jeremiah Hatcher · Answer

@Jeremiah Hatcher

@Jaysen Medhurst

Jeremiah Hatcher · Answer

Of course. Gift of Equity meaning I am being sold the property for under market value intentionally.

"A gift of equity involves the sale of a residence to a family member or someone with whom the seller has a close relationship, at a price below the current market value. The difference between the actual sales price and the market value of the home is the actual gift of equity. The process derives its name from the fact that the sales price is so much lower than the market price" - source investopedia

Jaysen Medhurst · Answer

I'm not sure what you mean by "gift of equity" @Jeremiah Hatcher. Can clarify what you're proposing?