using home equity or HELOC as a down payment?

[Brandon Morgan]

does anyone have any experience with using their current homes equity for down payment on another home? I have a lot of equity on my current home and was thinking of taking some out in the form of a HELOC as a down payment. based on all my research it seems like a useful tool. I have over 200k in equity and I wouldn't need more than 50k for a downpayment. any advise on this?

[Scott E.]

You won't be able to tap into all of that home equity, but doesn't sound like you need it anyway.

The bank will probably lend ~80% CLTV. Meaning you take 80% of your home value, then subtract out your first mortgage, and that's about what they'd give you for a HELOC. Depending on loan size, credit score, and other factors this CTLV might be limited to 75% or even 70%.

I think it's a good plan to leverage your homes equity to buy another deal. But the challenge will be finding something where the numbers make sense because what you will be doing is 100% financing on that investment property (you'll have your 1st mortgage on that property, then the HELOC is indirectly debt on that investment property). Plus you'll be 100% financing with expensive debt. Both your 1st mortgage and your HELOC will come with high rates.

It's tough enough to get deals that cashflow nowadays if you're putting 30%-40% cash down.

Anyways all that being said, get the HELOC. It'll be good to have access to that money in case an opportunity does come along.