Georgia Mortgage FHA

I get this one. Often.

Can I use my HELOC to buy an investment property or make a down payment on an investment property?

Why of course you can. But should you?

Unfortunately certain factions have begun to look at 100% mortgages as a fraud being perpetrated against “good citizens” by the mortgage industry. Here are a couple of facts for you:

Interest rates on 100% full doc investment loans are are less than most current HELOC rates.

I just priced a HELOC for myself from Bank of America. I have excellent credit and good income. The rate I got on the $130,000 HELOC which is enough to purchase an investment property for cash was 8.59%. This is due in 10 years.

Then I priced a 100% investor acquisition (30 year fixed with no prepayment penalty) through NOVATION MORTGAGE and got a rate of 8.29%. This is due in 30 years. There is no private mortage insurance on this loan, either.

Even if I only took out a few thousand dollars to make a down payment it doesn’t make much sense. You have to understand blended rates to fully comprehend this. If I get the $13,000 HELOC to make a down payment and borrow 90% to acquire I still have some mark up from the lender for going to 100% of the sales price so I’m actually hurting myself. Plus my DTI lowers because now the down payment is borrowed.

So what makes more sense?

To me it makes much more sense to keep my primary equity intact and not crossed with my investment. Go with the 100% loan whether it’s 1 loan with no PMI, an 80/20 or a 70/30 and all secured by the subject property. Now there’s no mixing of funds if I ever get into a 1031 exchange and all of my home equity is still available should I need it for something else.

My 2 cents.

— admin