Using a HELOC for a down payment

[Brad Waterstraat]

Hey everyone!

About 6 months ago, I came across BP and FI and I haven’t stopped learning about real estate investing since then. As a new investor, I feel that house hacking would be my best option.

I live in the Chicago area, and I recently got approved for a loan. I planned on using what’s called the home possible loan, which is a conventional loan that lets me put 5% down on a 2-4 unit property. As you may know, prices in Chicago are not cheap and I want to use as little of my own money as possible.

I don't own a property myself, but I know people who own properties free and clear. Would I be able to use a HELOC from the equity in their property to pay for the down payment on the property that I purchase? Then the rest of the purchase price would be funded by the previously mentioned home possible loan?

If so, does anyone know exactly how this would work and the steps that I would have to take? If anyone has done this before, I would love to hear your experience!

[Todd Rasmussen]

@Brad Waterstraat

The source of the funds will be requested by the underwriter and can not indicate that the downpayment is borrowed. I'm pretty confident that will be an outright question on the loan application. So, if someone else is providing the funds for your down payment they will most likely have to write a letter to the lender stating that the funds are a gift to you. Otherwise, you would need that money to sit in your bank account for 2-3 months depending on the lender so the large deposit transaction is not shown on statements you will provide to the bank as part of their underwriting process. Doesn't get you around the question on the loan application though.