What bank will allow me to use a HELOC as a down payment?

Question

I’m trying to find a lender that will allow me to use the HELOC on my primary as a down payment for a new investment. Also, would a 203k loan be an option if I’m using credit to obtain the property?

Joe Splitrock · Answer

You can use a HELOC to purchase a property, but what you said is using a HELOC as a down payment. Conventional loans have a provision that down payment cannot come from borrowed funds. The concern on an investment property is that the property is then 100% leveraged. The entire reason the bank doesn't lend 100% of value is to avoid it being 100% leveraged. As Todd mentioned, you can put that money in your bank account for 2-3 months, then when the bank asks for your last two months bank statements, it will show the money in your account. The source of down payment is then cash from your bank account, not a check from your HELOC. I know it sounds like splitting hairs, but that is generally how it works. You may find a commercial lender who doesn't care what the source is because technically the down payment is secured against the HELOC property, not the property you are buying.

Zack Karp · Answer

@Thomas J Mele you're getting some bad advice here.  You ABSOLUTLEY CAN use your heloc for down payment on another property for a Conventional loan, because it is SECURED borrowed funds.  Unsecured borrowed funds are what's not allowed.  You do not need to stick it in the bank for 2-3 months first.  However, you WILL need to liquidate those funds prior to the purchase, and be able to show what the new monthly payment is on the heloc for underwriting, before you can get final loan approval.

Be sure you are getting advice from a mortgage professional, not posts from non-LO's.  This is definitely a stay in your lane situation.  No offense to the posters here...

Also a 203K loan is a FHA loan, which can only be used on a primary residence.

Best of luck!

Marco G. · Answer

@Thomas J Mele

I’ve purchased three investment properties using HELOC funds as down payment exclusively (2015, agency debt) and just bought a fourth (jumbo) that will be my primary where the down payment was from cash out proceeds on my current primary.

The investments were with aimloan.com. Fourth a local credit union.

It’s not mortgage fraud. I don’t know if the rules changed since 2015. The jumbo is a local bank keeping it on their own books so they make their own rules but they used Fannie guidelines as far as I could tell/remember, but I could be wrong about that.

Thomas J Mele · Answer

@Joe Splitrock

That’s a great tip, that was my plan, thank you for confirming

Thomas J Mele · Answer

@Jesse Ruiz

Yes that was my plan as well. To use it to buy another property and BRRRR it. Then pull out the equity, pay off the HELOC

Todd Rasmussen · Answer

@Thomas J Mele

HELOC as a down won't happen without committing mortgage fraud or holding the proceeds in an account 2-3 months so the deposit doesn't show up on your account statement. Might be able to use it as start up funds to create an llc to get access to it sooner, but doesn't seem like the month or so you'd save would be worth it.

Todd Rasmussen · Answer

@Thomas J Mele

I've never talked to a bank that would accept borrowed funds as a down payment. I think that's a total of 8-9 banks and three hard money lenders over two dozen mortgages. "Are any of these funds borrowed?" has shown up on every mortgage application I've ever filled out. You can use the cash proceeds to buy anything you want, but getting a bank to lend to you when you aren't putting any skin in the game is much much tougher.

We used our heloc to buy and rehab a propety "cash" and then refinanced at the end of it. Could that be how you were previously advised to do it?

Account Closed · Answer

@Todd Rasmussen I just got approved for a HELOC in CA and was planning on using it for the down + remodel. HELOC is in escrow and should close in a couple of weeks max.

Thomas J Mele · Answer

@Todd Rasmussen

I’m a bit confused. I was advised that I could use the HELOC to purchase another property. I looked into this throughly before I applied

What bank will allow me to use a HELOC as a down payment?

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