Real Estate Investing
Should I use the equity from my primary residence as a down payment on a rental income property? and will this negatively affect my ability to qualify for a loan for the rental property either in DTI ratio or some other way?This will be my first rental property purchase, I have a 779 credit score.
Great question and thanks for asking. I would not recommend using a home equity loan to purchase another property. This would create a 100% financed loan and both your home and rental property would be in jeopardy if you experience financial hardship. However, it is best to consult with a mortgage professional before moving forward. Best of luck.
The best scenario in using home equity to purchase investment property is when you don’t need it. It’s just another option. Your due diligence and cash flow projections need to support any debt service you take on. As far impact to DTI that’s hard to answer since we don’t know your full financial picture. You can start that conversation with a lender without them pulling a hard credit report. They can let you know. Ideally you don’t want to be 100% financed and there may be better ways to do it. There are a lot of great resources and articles on this site.
Hi, Marcus –
Yes, you can use the equity from your primary residence as a down payment, and it may be a good option for you. Our article “Using a HELOC or Home Equity Loan to Finance Your Business” may help you decide.