Using one property as collateral/down payment for another

[Patsy Waldron]

Hello lenders and experienced BP investors out there....

How realistic is it to ask a conventional lender or private lender to use one property (a SFH owned free and clear), worth $75K, as collateral instead of a down payment (or maybe have a small down payment, but nothing close to 25%) for another property worth $130,000? Would lenders accept this arrangement? The second property has tenants in and rents would more than cover mortgage payments, and this collateral represents >50% of property value. Any thoughts, suggestions of where to look or other ways of going about this are very much appreciated!!!

[Brent Myotte]

It sounds like this will work for you. Most HMLs will allow the entire down payment to be equity from a cross collateralized property. You can also take a portion of equity from several properties to make the amount needed available. Crossing several properties in this way is a little more complex so you want a lender that is familiar with how to do it. Generally, the recorded instrument that places the lien for the cross is in first position, so other liens will have to be subordinated to it. Also keep in mind that the loan fees and other costs cannot be included in this, so those amounts must be cash brought to close the transaction.