Proper timing of obtaining a HELOC vs target property loan
NJ · Member since 2026 · 5 posts · 2 votes
Proper timing of obtaining a HELOC vs target property loan
Most Popular Reply
Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes@Ilya Kazakov I want to make sure to answer your question and not whether you "should" or "should not" do this strategy. Normally, when you open a HELOC, you don't have to draw from it immediately. Meaning, you can have a HELOC now, have $0 balance on it, and not pay any interest. You can leave it there for years before drawing from it. So, if you take years to find a property, then no big deal. Therefore, there won't be any risk to timing since you can't open one right now and not have any fees for doing it. I'm a little concerned that the "discussions" you have had with these lenders didn't mention this. That's a pretty basic benefit to most HELOCs. Please be careful out there.
11 Replies
- 3moAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
@Ilya Kazakov I want to make sure to answer your question and not whether you "should" or "should not" do this strategy. Normally, when you open a HELOC, you don't have to draw from it immediately. Meaning, you can have a HELOC now, have $0 balance on it, and not pay any interest. You can leave it there for years before drawing from it. So, if you take years to find a property, then no big deal. Therefore, there won't be any risk to timing since you can't open one right now and not have any fees for doing it. I'm a little concerned that the "discussions" you have had with these lenders didn't mention this. That's a pretty basic benefit to most HELOCs. Please be careful out there.
- 3moStacy RaskinBusiness MemberLender · Member since 2022 · 1k+ posts · 513 votes
The lender or mortgage broker that provides the HELOC may not be the best lender or mortgage broker that provides the DSCR loan. If getting a HELOC, that will be a debt to income (DTI) loan that will be based on your personal income and DTI ratios. A DSCR loan will be based on the actual or projected property rents besides your down payment and middle mortgage FICO credit score. Different mortgage brokers or lenders often specialize in different programs usually depending on what type of investor pools on buying the funded loans on the backend of the process if the lender isn't holding the loan on their books. Funding on a DSCR loan should take 21-30 days if a 1-4 unit or less depending on when the appraisal is scheduled. A HELOC will depend on if an online income verification or a traditional underwrite- that can take less time if online or longer if a full underwrite with sending in income documents, etc.
More on DSCR loans. DSCR loans won't use your income to underwrite the loan. DSCR loans are based off of down payment, credit score and either actual or market rents so it helps to supercharge an investor's real estate goals and net worth.
Here's a bit more in detail about how rates are calculated for DSCR loans:
1. Credit score- the higher the best. 760-780+ generally gets best pricing for investment property loans with most lenders. From there every 20 point increment affect pricing differently. So for example, a 761 credit score will be in the 760-779 credit category, then going down to 740-759 and so on.2. Loan to value ratio: The higher the loan to value ratio (LTV) is, pricing takes a hit. So your pricing will be higher for a 80% LTV loan than for a 60% LTV loan.
3. Prepayment penalties- usually 1-5 year terms. The shorter the prepayment term has an impact on increasing the rate.
4. Are you cash flowing the property? More on how that is calculated below. Is your DSCR ratio greater than 1-meaning are you cash flowing (according to the lender's criteria of mortgage, property taxes and insurance (and HOA) if applicable). Many lenders will not do a DSCR loan unless cash flowing. If they will do a loan with less than 1, the pricing takes a hit. This criteria is for 1-4 and 5-8 unit programs.
I've included an example below to help illustrate this.
So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.
See example below:
DSCR < 1
Principal + Interest = $1,700
Taxes = $350, Insurance = $100, Association Dues = $50
Total PITIA = $2200
Rent = $2000
DSCR = Rent/PITIA = 2000/2200 = 0.91
Since the DSCR is 0.91, we know the expenses are greater than the income of the property.
DSCR >1
Principal + Interest = $1,500
Taxes = $250, Insurance = $100, Association Dues = $25
Total PITIA = $1875 Rent = $2300
DSCR = Rent/PITIA = 2300/1875 = 1.23If a purchase, you also generally need reserves / savings to show you have 3-6 month payments of PITIA (principal / interest (mortgage payment), property taxes and insurance and HOA (if applicable). If a cash out refinance, many lenders will allow the cash out to satisfy the reserves requirement.
DSCR lenders generally let you vest either individually or as an LLC. It's a great way to increase your net worth and these loans can also be used to pull cash out of a property as it appreciates allowing you to reinvest money into new deals. Happy to connect if interested in learning more about DSCR loans.
Bright Skyline518 Reviews - 3moNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
Hello.
@Andrew Postell great response but I'll go ahead and say what you didn't want to say. =)
Do not do this. You will lose money. No rental can support 100% financing right now.
Hope this helps
- 3moAndrew PostellPro MemberLender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
Quote from @Nicholas L.:
Hello.
@Andrew Postell great response but I'll go ahead and say what you didn't want to say. =)
Do not do this. You will lose money. No rental can support 100% financing right now.
Hope this helps
Exactly. I was hoping she would get curious and ask the "why" but maybe she got it from what you stated.
- NJ · Member since 2026 · 5 posts · 2 votes3mo
Thank you Stacy and Andrew for your advice! I should have mentioned that I definitely was not going to get both the heloc and the property loan from the same lender. I found a couple of heloc lenders that cover all costs and require mo minimum lump sum draw. Which of course should have told me that I would not need to pay interest on the money I have not yet drawn. So thank you @Andrew Postell for pointing that out. Other than that, I will only invest if the numbers work the right way.
- 3moFloyd JohnsonPro MemberReal Estate Agent · Orlando, FL · Member since 2025 · 60 posts · 17 votesAlso be aware on a Heloc. Some do require immediate draw of D amount or percentage and have early payback penalty as well. So they are not all the same and just because you get a Heloc does NOT mean it just sits and waits for you to draw so make sure before you decide on the company. Clarify if they require a minimal draw initially or not.
- NJ · Member since 2026 · 5 posts · 2 votes3mo
Thanks to everyone who contributed. After reading the replies I can see how my approach may seem lopsided. The reason is I described only one side of my plan. The other seemed out of scope for my question, but I feel like I should mention it. This property is intended to an STR that I will use to offset a significant tax bill I had to, knowingly and expectedly, pay after I moved some of my retirement funds to an unrelated, non-real estate income producing strategy. This offset is expected to be in upper double digits in the first year. That said, the property I buy will need to be cash flowing regardless and I am working on those numbers.
- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes3moA. Always plan on things taking longer than planned.
Quote from @Ilya Kazakov:
I'm gearing up for purchasing of my first rental property. I plan to use a HELOC on my primary home to pay for the down payment, closing costs, etc. on the property. I'm in discussions with several lenders and I have a few sites that offer decent HELOC options. Clearly, I will need to have HELOC funds before I close on a property loan, but I am still in the search phase for that property. Timelines of applying and closing on a HELOC vs a conventional loan vs a DSCR loan differ significantly. Are there rules of thumb or best practices in terms of how to navigate these independent application processes? Should one be done before others or should I fire off everything and hope the timing will work out? Any advise is appreciated.
B. If things are going smoothly at first, see item A. - 3moVijay FriedmanBusiness MemberMiami, FL · Member since 2026 · 766 posts · 123 votes
Quote from @Ilya Kazakov:
I'm gearing up for purchasing of my first rental property. I plan to use a HELOC on my primary home to pay for the down payment, closing costs, etc. on the property. I'm in discussions with several lenders and I have a few sites that offer decent HELOC options. Clearly, I will need to have HELOC funds before I close on a property loan, but I am still in the search phase for that property. Timelines of applying and closing on a HELOC vs a conventional loan vs a DSCR loan differ significantly. Are there rules of thumb or best practices in terms of how to navigate these independent application processes? Should one be done before others or should I fire off everything and hope the timing will work out? Any advise is appreciated.
@Ilya Kazakov
I'd generally try to have the HELOC approved and available before you're under pressure to close on the investment property. That gives you certainty on your down payment funds and avoids trying to coordinate two separate closings at the same time. I'd also keep both lenders informed so there aren't any surprises during underwriting.- Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes3moHELOCs can be closed because the lender ate pizza for lunch. It's random.
Quote from @Vijay Friedman:
Quote from @Ilya Kazakov:
I'm gearing up for purchasing of my first rental property. I plan to use a HELOC on my primary home to pay for the down payment, closing costs, etc. on the property. I'm in discussions with several lenders and I have a few sites that offer decent HELOC options. Clearly, I will need to have HELOC funds before I close on a property loan, but I am still in the search phase for that property. Timelines of applying and closing on a HELOC vs a conventional loan vs a DSCR loan differ significantly. Are there rules of thumb or best practices in terms of how to navigate these independent application processes? Should one be done before others or should I fire off everything and hope the timing will work out? Any advise is appreciated.
@Ilya Kazakov
I'd generally try to have the HELOC approved and available before you're under pressure to close on the investment property. That gives you certainty on your down payment funds and avoids trying to coordinate two separate closings at the same time. I'd also keep both lenders informed so there aren't any surprises during underwriting.
If you get approved for a HELOC, take the money and put it in a different interest bearing bank until needed, or don't plan on it being available when you do need it. It's not personal from the bank, but you don't know their internal fiscal strength until it's too late.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.