Investor · Huntingtown, MD · Member since 2016 · 97 posts · 41 votes
My wife and I have recently started our REI career. We have a couple under our belt and are looking for another. My question is about borrowing the down payment. We have tapped our resources w/out going into our emergency funds as much as we are comfortable.
My in-laws have a HELOC on their primary residence and have offered to let us use that as they have no intention of using it for anything.
Are we allowed to borrow a down payment? And how would we structure the payments to them? Obviously, on top of the interest they pay, we would pay them additional interest for the use of their $$. Has anyone had experience doing this and how did they structure the deal?
Investor · Huntingtown, MD · Member since 2016 · 97 posts · 41 votes
10y
@John Rogers Our plan was to use the money to purchase a long term rental. My thought was to pay cash for a property, determine an amount of interest on their loan (for example, 15% total on a $50k loan) and basically set up an amortization schedule until we have repaid the entire loan.
I just know some banks frown upon down payments being borrowed. I also don't want to feel like we're screwing them. Should we pay them such as a bank, with a certain amount of interest per year; or is it fair to set up something where we offer interest on the entire loan?
Rental Property Investor · Knoxville, TN · Member since 2015 · 76 posts · 14 votes
10y
I just found this post when searching for ideas about borrowing for a down payment. To answer your question about the bank... We used a local bank that does portfolio loans and we used money from our own HELOC and they did not care if it was borrow but they did want to see the terms of the loan. If you have strong credit and income that definitely helps. I have never thought about using my families HELOC, good idea!
Residential Real Estate Agent · Grand Rapids, MI · Member since 2013 · 803 posts · 689 votes
10y
You cannot borrow funds for the down payment if it is used to by a investment property through conventional financing. No lender I know of will allow this to happen and will need to see proof of where your DP came from. You could use their HELOC to flip properties like a hard money lender or use it to buy a rental for cash then refi it out when you have the funds. Personally, if I can't afford to buy it with my own money for the DP then I can't afford it and I should just wait. There is always another deal down the road.
Rental Property Investor · Knoxville, TN · Member since 2015 · 76 posts · 14 votes
10y
@Jake Thomas We borrowed the down payment from our HELOC because we are doing the BRRR method. Our loan officer is planning to refi the house in a few months for us to 75% of the after repair value and we will be getting the down payment back to payback on HELOC or use again on another project. If you do not have a way to pay the money back by profiting from the flip or refinancing for higher LTV on a rental then yes you should not borrow the downpayment.