“Can you use a home equity line of credit as a down payment to purchase a new home or a new investment property?” That’s a question we get all the time, and the simple answer is yes. That is absolutely an allowable source of funds.
Most mortgage underwriting guidelines will allow you to borrow money to be used for a down payment, provided that that money is securitized or collateralized by an asset. If you have a free and clear car, lot, RV, a boat, or if you have some equity in your home, you can borrow against that asset, and you can go ahead and use that as an allowable down payment on the purchase of a new home.
Now, you do need to take in consideration the debt-to-income ratio implications of taking that new debt on. Of course, if you’re buying a new investment property, we would need to figure out what’s the current debt service on your current home going to be with your first and new second mortgage, and will that fit into the debt-to-income ratio to make the new purchase work? Now, if you are buying an investment property, also keep in mind, we can use estimated rents from an operating income statement and comparable rental schedule that an appraisal will do, to offset the new mortgage payment. So if you’re buying a new investment property, and the payment’s $2,000, but the appraiser says that there’s $2,000 in rent that’s going to come from that property, then those two things can help to offset one another.
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