How does primary home HELOC affect Cash-out refi on investment?

[Jin Zhang]

I've heard people using cash from a HELOC on one property (A) to buy an investment property (B), then immediately do a cash-out refi on B and put the cash right back to the HELOC on A. I'm planning to do that, however I am just wondering whether the HELOC on property A (debt-free primary home in my case) will negatively impact my ability to get cash-out refi on B (an investment)? I am worried the unpaid HELOC plus the new mortgage would tip me off the DTI ratio. It looks like a bit of a catch-22: I can't paid back the HELOC unless the lender gives me the cash-out refi, but I can't get the refi unless I pay off the HELOC? How did you get to utilize the equity in your existing properties to invest in more?

[Martin M.]

@Jin Zhang

There's another loan option that you may or may not be aware of. It's called a "DSCR" debt service coverage ratio loan.

Most lenders that specialize in single family homes don't issue these. Investor focused lenders do.

The DSCR lenders tend to look at whether or not the income on the property covers the mortgage as opposed to looking at your own income or your DTI. They'll look at this too but it's not the main factor.

Keep in mind though, even though this particular type of loan isn't centered around your personal DTI, it will increase your debt obviously and that'd impact your ability to borrow future loans that do factor in DTI (as paying for the DSCR loan increases your monthly debt)