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Updated about 7 years ago on . Most recent reply

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Sam Burnoski
  • Schaumburg, IL
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Using loan for 20% down payment- Will I be approved for mortgage?

Sam Burnoski
  • Schaumburg, IL
Posted

Here's my situation: 

I want to buy an investment property at 20% down (which would be $10k-11k).

I can get a loan for the down payment (talked with a credit union already). If I choose 5 years for repayment of this loan, it will be about $210 a month. 3 years would be $320 a month.

Are there lenders that would approve me for a mortgage if I used this loan to pay the down payment? i.e. I would have a $210 or $320 monthly payment in addition to the mortgage payment of around $500-$550?

The property would bring in about $950-$1000 a month in rent and it's in great shape. So it will cash flow a little bit even with the 2 payments.

Would it come down to DTI ratio?

This is a great investment opportunity I don't want to pass up, so I want to explore all my options for financing.

Secondary question- would it affect my mortgage approval chances if the loan for the down payment was a home equity loan vs. an unsecured loan vs. a private money loan?

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Andrew Postell
#1 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Lender
  • Fort Worth, TX
6,324
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Andrew Postell
#1 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Lender
  • Fort Worth, TX
Replied

@Sam Burnoski the details to this are very important to understand. First, you aren't permitted to borrow funds, unless those funds come from a piece of real estate, to purchase an investment property with a conventional loan (meaning Fannie/Freddie loans). If you are using a "portfolio" or "commercial" loan then each bank could. So if your loan is an unsecured loan, and you are seeking a conventional loan, then we would need to structure this in a couple of ways:

  1. Get a business account.  Deposit the funds into this business account.  Using a business account means you don't have to source the deposit.  If you place the funds you borrowed into your personal account the bank will require you to "source" those funds - meaning you have to explain them and provide paperwork.  And once they find out where the funds came from you would be declined.  Again, this is conventional rules.  But if you have a business account then you don't have to source.  HOWEVER, not every bank will follow this "non-sourcing" rule.  So  you would have to interview your banks first to see if they don't source deposits into a business account.
  2. Since you are using this for business purposes ask the bank if you can place this in your business name. That way, it doesn't even factor into your personal DTI. Your income might support the payment anyway but if it's possible to put under the business name then that's the preferred route.

Both of these strategies will require you to create a business but if you are in the investment property business you should have your own business entity anyway.  Let me know if you have any other questions.  Thanks!

  • Andrew Postell
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