Can you use an unsecured personal line of credit to invest?

Question

I currently want to invest in real estate but unfortunately i don't have the funds. A year ago i helped a relative get an apartment complex with an FHA loan by being there co signer but because of me doing this i don't qualify for any mortgage loan now. I dont meet the Debt to Income ratio under 45% that most bank require and putting a higher down payment is not an option for me and i dont have any family to help me with it either. I have researched other alternatives like hard money lenders to invest in real estate to fix and flip but they too a require a  down payment that i dont have for or the funds to repair the house. So i did more research  and got a bit creative and found personal line of credit. Is it possible to get an unsecured personal line of credit to pay the down payment and the repairs for fix and flip. By doing it this way i will have the funds to pay the down payment + fees and the repair cost. For example using a line of credit i would be able make monthly payments until its payed off. Is it possible to invest in real estate this way? If it is possible a friend of mine would like to partner with me so both of us would get a separate line of credit and split the repair cost and such to get the same result but with a lower monthly payment. Yes i am aware that i would need to pay for the interest for the hard money lender and for the line of credit but it will help me get into investing in real estate at the age of 22. I know that im using a lot of leverage to try to hopefully invest but how i see it is if the fix and flip goes well i would make enough to pay the hard money lender and the line of credit with using very little of my own money. If it goes bad as in i am un able to pay back the hard money lender and they take the property i would be stuck with the line of credit loan and make monthly payments. If the cost of repair is more then expected i would use the line of credit which would result in higher monthly payments but that is why my friend would help. If both of use get a line of credit we could split the cost and both of us can make smaller monthly payments to cover the repairs. This is just an idea of a strategy that i have to invest in real estate an would appreciate any feed back if it 1 possibility to invest.

Nghi Le · Answer

I've talked to a hundred different hard money lenders over the past year, and I haven't heard any that would let you pay for the down payment with a credit card... Perhaps if you had a cash advance from the credit card or those "0% for 18 months" offers.

I've co-signed loans before (auto loan and student loan), and as long as I could show that someone else has been paying the monthly payments for at least one year, I could get the bank to not count that loan against my DTI ratio (BTW they raised the limit to 50% recently).  But co-signing a mortgage might be different.  I'd check with your conventional lender though.

But whether you get a conventional loan or hard money loan, they require a down payment, which you say you don't have.  And not only that, but usually that down payment needs to be seasoned for a couple of months.  So if you do get those funds from a personal/unsecured LOCs, you're essentially paying "unnecessary" interest for 2-3 months just to qualify for a loan.

All of this sounds pretty risky to me; you're likely going to dig yourself into a hole, especially if you're just starting out and don't have experience.  Personal/Unsecured LOCs can be pretty pricey.  In my opinion, maybe you should wait until you can build up a sizable down payment yourself (around 20%).  Keep in mind that a lot of HMLs require not just cash to close, but they want to see 6 months of interest payments in the bank, as well as some extra money to fund the initial rehab because the rehab funds that they let you borrow are reimbursements, not pre-disbursements.

Or you can find someone with money to partner with you.

Wayne Brooks · Answer

Theoretically, yes.  Realistically, it's tough to Get an unsecured line of credit without good income and little debts.

Chris Mason · Answer

Hi Account Closed,

If you purchased a home outright by swiping a credit card (or similar), you'd be able to apply for a cash out refinance six months down the line, and no one would ask where your down payment funds came from. This is for standard residential financing.

For HML.... Hard money loans are up to each hard money lender. I wouldn't be shocked if there was a HML out there that would let you swipe a credit card (or similar) for the required down payment. I also wouldn't be shocked if the first 15 you called said "no," so it may take some dialing for dollars on your part until you get to that 16th that said "yes."

Jeff Filali · Answer

Get a second part-time job or a third and downsize all unnecessary expenditures, you could save up the down payment in no time.  You're just asking for trouble otherwise.  What if something goes wrong, and you need another $10-20K, you will have tapped all your resources to do the deal, and not have those options available to bail you out.

Sam Shueh · Answer

High interest rate source is better than no source.

Shelly F. · Answer

Great thread guys thank you! I've suffered from analysis paralysis far too long and now I'm ready to jump! I've got a solid W2 income, I'm a newly licensed RE agent, and decent credit with not much to put down. Been trying to solve this puzzle so I can jump in sooner rather than later... Thank you for the info and advice here!

Christi Hawkins · Answer

Hi Antonio,

It's correct that any Conventional lender will count that FHA loan as a debt. They usually hit both ways, the debt counts as yours because you are a co-signer but they won't allow to you to offset it with the income from the property because you are a co-signer. I think it's a great idea to partner with your friend and you both share the risk but  I would also consider looking into a Hard Money Lender. I agree with Chris, there has to be one that would let you swipe a credit card for the down payment. I would do some research, make some calls and find one that fits your situation. I love that you are getting into investing at 22, I wish I had. Good Luck, if I can think of a lender I will let you

Tyler Mutch · Answer

If you are a co-signer on the loan for the other property, shouldn't you be able to tap into the income that they are receiving to count towards the debt to income? Otherwise I would say go for it. You may become over leveraged if you use loans for the entire amount, but if it is a good enough investment the rent received each month should cover the payments.

Can you use an unsecured personal line of credit to invest?

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