The sequence that works
- Open the line before you are under contract. A line takes days on the digital program and weeks on a bank program; a purchase contract rarely waits. Investors who open the line first negotiate from a position of funds in hand.
- Draw what the purchase needs — down payment, closing costs, and a cushion for the first repairs. Interest accrues only on what is drawn.
- Close the purchase with a conventional investor loan or a DSCR loan qualified on the new property's rent. The new lender sees the line on your credit report and counts its payment.
- Pay the line down from cash flow, a sale, or a later refinance of the new property once it has been improved and seasoned. On the digital program there is no prepayment penalty, and paying the balance down restores availability to draw again.
How the next lender treats the borrowed down payment
Lenders care that the source of funds is traceable and that the payment on any new debt is in the ratio. A draw from a recorded line, deposited and documented, satisfies the first; disclosing the line satisfies the second. A DSCR lender on the new property does not measure your income at all, so the line's payment matters there mainly for reserves and credit. A conventional investor lender will add the line's payment to your debt-to-income math, which is where investors with several financed properties sometimes find the second file tighter than the first. Knowing which kind of loan the new property will carry tells you how much of the line to draw.
BRRRR and the exit
Buy, rehab, rent, refinance, repeat depends on getting the rehab money back out. A line on an existing rental funds the purchase and the rehab; once the new property is rented and the lender's seasoning period has passed, a cash-out refinance of the new property at its improved value repays the line, and the line is available for the next deal. Two cautions from experience: seasoning rules on the refinance are set by that lender and vary, so confirm them before you count on the timeline, and the appraised value after rehab is an opinion, not a promise — leave room.
Where investors get hurt
Drawing the full line to buy a property that will not cover its own payment, then discovering the line's payment plus the new mortgage exceeds the combined rent. A line is secured by a property you already own; if the new deal fails, the old one carries the loss. The arithmetic to do before drawing is simple: can the rent on both properties carry both payments, with a vacancy in either, and still leave room? If yes, the line is the cheapest capital you have. If no, the line is a loan against your margin for error.
Questions investors ask about this
Can I use a HELOC as the down payment on an investment property?
Yes. Borrowed funds from a recorded line are an accepted source of down payment with most investor lenders, provided the line is disclosed and its payment is counted in the new file.
Will the new lender see the line?
Yes — it reports as a revolving account on your credit, and the draw shows in the bank statements the new lender reviews. That is normal. What causes problems is an undisclosed deposit that cannot be sourced.
Should I open the line before I find the property?
Usually. Lines take days to weeks; purchase contracts do not wait. Having the line open lets you draw when the contract is signed instead of starting an application then.
How do I pay the line back?
Cash flow, a sale, or a cash-out refinance of the new property after it is improved and seasoned. On the digital program there is no prepayment penalty, and paying down the balance restores your available credit.
Is it risky?
The line is secured by a property you already own, so a failed deal on the new property is paid for by the old one. The discipline is to draw only what both properties' rent can carry with a vacancy.
Keep reading
- How a HELOC on a rental worksWhat is different from the line on your own house, and why most banks say no.
- HELOC vs. cash-out refinance on a rentalKeep the first mortgage you already have, or replace it.
- Behind a DSCR or portfolio first mortgageLien position, subordination and prepayment questions.
- Qualifying with bank statementsFor landlords whose tax returns are written to show as little as legally possible.