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Can I take out home equity LOC on primary residence and use it immediately to buy investment prop?

I want to take out a $25,000 home equity line of credit on my primary residence which I bought 16 months ago and use that money within the next 6 weeks to buy an investment property. Is there an issue with seasoning of bank funds?
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March 10 2012 - Denver
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Answers (1)

There is no issue with this, and using funds from your HELOC is perfectly acceptable.  However, you will have to include the new balance on your HELOC and new monthly payment in your overall debt-to-income ratios, and some lenders/investors have different ways they will "hit" you for the payment on the HELOC.  Most lenders/investors will use 1% of the total available balance of the HELOC....so in your situation, $250.

However some lenders/investors will actually be less conservative, and actually allow us to use the actual payment on the HELOC to qualify you.  I/we are a Fannie Mae direct lender, so when working with a Loan Officer and/or Company that has this capability, we will not be as conservative, and can be the most liberal when it comes to these sorts of things. 

Other things that can trip you up if you are working with a lender/investor who is too conservative is how many properties you currently have financed, how many months of cash reserves you must have after closing, amongst other things, so again, it's your best bet to be working with a lender/investor who has the ability to be less conservative, especially in an mortgage lending enviroment where home loans continue to be difficult to obtain.

Lastly, if you are purchasing this property as a rental and you will be holding onto it for sometime, it's quite different than purchasing your primary residence, so it's important to work with a lender/investor who truly understands Cap Rates, IRR, ROI, cash-on-cash rates or return,etc. and can provide you with tools that can help you work through these evaluations, to insure that you will make a solid fiancial decision when making this purchase.

Should you want to chat further about these things, or if your already working with a lender, and would like to obtian a second opinion about this venture, please feel free to contact me.

Good Luck!
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March 11 2012
 
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