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Can you take out a home equity loan to use as a down payment on another property? Find out more in this video.
Hey folks. Another question we just got is can you take out a home equity loan to use as a down payment on another property? Well first, let me describe the differences between a home equity loan and a home equity line. A home equity loan is just another mortgage on top of your current mortgage. It acts the same way. The interest is the same way. It compounds the same way. It’s an amortization-type schedule. We do not encourage home equity loans. What we do encourage is home equity lines, so I’m going to tackle it from that perspective that you’re asking, can you take out a home equity line to use as a down payment for another property? The answer is yes.
Actually got a client who used a $200,000 home equity line of credit, paid it off in 11 months, and now he can use that $200,000 home equity line of credit to buy 10 investment properties, so obviously he’s not paying cash for all 10 properties, but he’s taking that $200,000 and breaking it up into $20,000 down payments, and then buying those investment properties with the home equity line of credit on their own, and using his $20,000 to buy those properties with the down payment, so now he’s buying 10 investment properties as opposed to just 2 if you were to break up the $200,000 and pay cash for them. I encourage that route much better than just paying cash for those properties, because now you’ve got 10 properties, and you’re diversifying your risk on those investment properties just in case someone were to not rent out that property for 1 to 2 months, you’ve got 10 properties as opposed to just 2, not to mention, you’re going to have more income.
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