Using a SBLOC to avoid mortgage insurance on a small multifamily in Los Angeles CA

[David Lasky]

This question is for all the lenders out there please let me know if this plan holds water. 

I'm a first time home buyer. My goal is to buy a small 3-4 unit multifamily property in Los Angeles by the end of the year. We want to find a property that can cover our housing expenses. My company will be relocating me back to LA and I am tired of renting. If everything works out I'll be able to put 10% down from savings on a $1M property by years end. I would like to try to avoid PMI if possible. My brokerage is offering a Securities Backed Line of Credit (SBLOC). They can lend me the other 10% at a floating 8.5% interest only line of credit. I would then try to fix up the units and pay off the SBLOC as fast as possible. If this scheme can be pulled off I will still have about 6 months of expenses saved up for whatever surprises might be in store.

My main questions are:

Will the SBLOC affect my ability to qualify for a loan? I was told that the SBLOC does not show up on a credit check. 

The stocks would have to drop 65% before a margin call. Is that safe enough?

Is there a product that could roll renovation costs into the loan so I could have a little cushion to improve the property?

Should I go FHA or conventional for this plan?

Thanks for your thoughts. I'm looking forward to hearing your opinions in the comments. 

-David

[Dave Skow]

@David Lasky- thanks 1) get a pre approval underway and ask your lender these questions 2) the loan you mention is likely acceptable as its a secured loan ( like a 401K loan ) ..make sure that this is fine with your lender 3) if you want to put 20% down you will need to use FHA loan as conventional requires 25% down 4) if using FHA make sure you ask lender about the self sufficiency test requirement for the new proeprty