Leveraging Credit Card for Down Payment

7 Replies

Hello all! 

New investor here, as i was thinking of ways to come up with cash for a down payment i started to wonder has anybody leveraged a credit card for this? I have business credit and have a 50K limit card with 0% interest for 18 Months so my thoughts were to use this for a downpayment, the properties i am currently looking at will require a DP of about 15-20K. So i could liquidate whatever amount needed from the card (i have means of doing this without triggering a cash advance) and pay the minimum payment monthly with the cash flow i am obtaining from the rental for 18 Months not having to worry about interest then either cash out refi or get a HELOC to pay the remaining balance of the card off then continue to do this by getting more 0% interest cards and the beauty of using business credit is it does not report to your personal side so you do not have to worry about too high of utilization and you are not using any of your money to purchase properties!

Looking forward to discussing this with you all!  

My point of view has always been, as long as you know where the money is going to come from, and there's enough access to money to fund a sustained state of emergency, such as 6-months vacancy or a destructive tenant, put any and all money you can to work building you wealth.

In fact, if you can tell me how to convert credit cards into cash without the cash advance, I'd be grateful.

@Aaron Delavega - This was how I got my start.   It was pretty dangerous, but it worked.  The trick to remember here is, you MUST pay back that card before the 18 months expire or you'll get slammed w/ all the back interest

This method worked for me because I was BRRRing the properties and doing a lot of the labor w/ my father and myself.  Just make sure you can qualify for the financing on the back end

Good luck!

    Using the credit line can be a great way to get started and accelerate. My recommendation would be that you should use the credit to get into deals that have a lot of equity in them already. Reason being that you can do a cash out refinance later on, pull the money out, and pay off the credit line so you're not on the hook for large credit card payments. 

    @Aaron Delavega

    What kind of loan are you obtaining? Fannie Mae will not allow for down payment funds to be borrowed from unsecured debt such as a credit card.

    Per Fannie Mae:

    Section B3-4.3-17, Personal Unsecured Loans

    Personal unsecured loans are not an acceptable source of funds for the down payment, closing costs, or financial reserves.

    Examples of personal unsecured loans include signature loans, lines of credit on credit cards, and overdraft protection on checking accounts

    @Aaron Delavega  

    Most of the risk with this strategy is in a situation where the 18 month period runs out and you are not able to refinance the debt. That can result in high interest. The other risk is default, but if the business card is not personally secured then it protects you personally.

    I am wondering how you were able to get a business card not secured against your personal credit, with a $50K limit that you can tap as cash, without it being considered a cash advance? If you could please share the card type and how the cash out strategy works, that would be appreciated.

    @Aaron Delavega ,

    I have done this many, many times over, I think 8x or so over the past 5 years.   The houses I buy are cash, so no hoops to jump through. So yes, it absolutely can be done.. just have to make sure you are good FICO score/utilization wise, as your FICO score is the biggest thing to keep up for refinancing.     To banks-- you are a FICO score, that's all they care about in the end, so make sure you are 700+ always.

      I don't know about using it as a downpayment, and if a bank will allow it-- normally they ask for the last 2-3 months statements, so you might need it to be seasoned for 3+ months.   That being said, if the loan gets rejected, you'll have an expensive lesson learned.   If it works, you better believe you're on a timeline and make sure things move.    Also-- I can't stress enough that exit strategy is the most important, stuff happens-- and if you leverage your credit-- it will go up/down, it's all a calculation.

    @Joe Splitrock @Jody Sperling   It's a balance transfer, not a cash advance.    Most balance transfers are a 3-5% transfer fee, then 0% for 12-18 months, the hope is that you won't be able to pay it off in full, and then they really profit from the interest as it's tacked on.      I knew NOTHING about this stuff,  until we started buying houses, and my husband actually comes from a really low income family, where it's common practice to cash out of all your credit cards before filing bankruptcy.    He's never done it, but just is aware of the practice. The more you know! 

    @Aaron Delavega  

    This can be done. As stated above you likely will not get the best rates as the top tier lenders will have provisions against this. You just need a solid plan and to locate a deal with lots of equity in it. Flipping or a BRRRR is what you are looking for here. It is a very risky strategy but as others have stated above it is how they got started. It can actually be a lot cheaper than giving up equity in the end.

    Would Dave Ramsey sign off of the borrowing to invest strategy? No he wouldn't but it can work out well for many. It can also go south fast so make sure you know what you are doing first.

    Many people are unaware that with 700 plus credit, low card utilization and depth of credit working for them you can get access to a significant amount of credit. This credit can be accessed through one's personal name or through a business entity. I am surprised this topic does not come up more on BP. These lines are perfect for paying for smaller renovations and can come in handy.