Is it a good idea to take out a loan for a $10K down payment?

[Michael James Rutter]

If I wanted to make a $200k purchase as a first time homebuyer with the intention to house hack, would it be smart or even doable to take out a loan for the down payment as well as the mortgage? The reason being that the time it would take to save for the down payment would take a while and I would like to get something as soon as possible. Thoughts?

[Account Closed]

If the numbers work out where your portion of the mortgage payment is reasonable for your to pay (or maybe you even make a little money), then it should be considered.  However, there are risks to that much leverage, such as default on your loans.  

Some people on this board will use a loan in order to secure a down payment for a house that they will rehab.  Once the rehab is done, either sell or refinance it so they have money to pay of the loan used for their original down payment.  The down payment loan is just a temporary loan in this strategy.

[David Flores]

@Michael James Rutter

As long as the numbers work yeah you can do this through private money or through the seller (seller financing). I wouldn’t worry about people saying your going to be over leveraged because it already sounds like you will be a 10k loan will barely move the needle on anything. But if it helps get the deal done and the numbers are still solid go for it. When taking out 2 loans like this always try to aim for at least a 10 cap. You will need the extra cushion.

[Andrew B.]

If you do not have enough for the down payment, how will you pay closing costs? How will you pay for turnover costs? What happens if you must carry the mortgage and pay to evict someone? My point, it that you cannot overextend yourself when purchasing a property. As many people have learned, the first year of ownership will be the most expensive. SOMETHING will go wrong the first year, and you must have proper reserves to pay for it. If you make a GREAT monthly income, maybe you can handle some issues as they pop up. However, I would strongly caution against trying to borrow the entire cost to purchase the property. Save up your downpayment. then save up $10k for reserves, then save and extra $5k-$10k for closing costs. NOW you are ready to purchase a property.

In addition, banks do not like to hear that you are borrowing the down payment because it means you have no "skin in the game." This is much riskier from the banks point of view and will make getting a mortgage more difficult.