Down Payment on Short-term/Vacation-Rental Investment Property

[Archimedes Jao]

Can I pay the down payment on an investment property with a home equity line of credit or home equity loan? The mortgage banker I spoke with said we had to have 25%. 

[Caroline Gerardo]

You can use the existing line. You need to draw the money and put in checking. You will qualify with the 100% possible payment on 1st and HELOC + tax and insurance and whatever rents long term less 25% haircut on the property you plan to purchase. If your DTI debt to income ratio was high on the FHA loan and income is only cost of living increased it is a struggle to qualify. Most lenders do not use proposed short term rental income when you have no history on your IRS taxes to show the higher rent, they ask the appraiser to come up with a long term rental survey (you pay for this about and extra $200) and that minus 25% expense ratio is compared to the principle interest tax and insurance payment of the propose purchase plus your total housing PITI as if you drew 100% of the HELOC at the maximum rate plus car, credit cards, student loans etc...

You need a lease and a deposit payment banked in your checking before docs.

No it is not likely or "believable" that your spouse is buying another owner occupied home unless: you can show you are divorcing thus you need divorce decree and whatever expenses from that mess. Wife would need a job transfer to the location of purchase and your combined debts hit your debt to income ratios. When married FHA pools all the debts and proposed max of the HELOC together. In this case no rents are used to offset so your DTI is going to be worse or higher.

Your loan officer is not great and should be able to write out all the possible numbers and explain the DTI.