How to Raise a Down Payment

down payment

How to Raise a Down Payment

One of the biggest challenges for first time home buyers and investors is raising a down payment. How much should you put down? Does it change whether you’re buying to live in or rent out? How can you raise a down payment on limited income? I’m going to answer those questions and more in today’s blog post! Before we get started, I want to know what challenges you’ve faced or wondered about in real estate. Leave some questions you wish I’d answer in the comments below, and you might see it featured in a blog post next week!

4 Tips to Raise a Down Payment

Use Home Equity

As you understand how to invest in real estate, you can pull money from the equity you have in your home. You can do this by either doing a “cash-out refinance loan” where an appraiser comes in to give you an appraisal on the new value of the home because it’s appreciated over time. Then, you can cash out the equity you have in your home and then a bank will loan you 80-90% on the new value. You can take that money and use it to begin investing in real estate.

 

Use a Retirement Account

A lot of people don’t know this, but you can now use your IRA or a SEP to purchase a second home or to buy an investment property. In some cases, you can actually use a KIO account. There are some criteria, but it is a good option to look into. Instead of using the money out of the retirement account to purchase real estate, you can also just borrow against your plan and then you don’t have as many restrictions.

 

Use Liquid Assets

You can raise money from your own liquid assets as well. You can use or borrow against the cash, stocks, bonds, insurance policies, etc., that you already have and use that for a down payment to get started in real estate.

Additionally, the classic way to raise a down payment is to save or use the money you already have in an account. If you are purchasing the first home that you plan to live in, this is a great place to start. However, there are many options for raising a down payment when building a real estate portfolio, and this isn’t my preferred way for that.

 

Use Lines of Credit

My favorite way is to use lines of credit from local banks. There are two lines of credits from the banks. One is a true line of credit where you can write a check for anything that you want. You can go buy a pair of shoes or buy a house. I have used those for rehabbing properties quite often.

The second way is where a property is connected to what you’re borrowing. The bank will give you the pre-approval letter, but they have certain ratios. Typically, a bank will not loan more than 80% of the value of the house, and that includes rehab. That means if you paid $0.70 on the dollar for the property, the bank would loan you 100% of the 70% and then you were going to use the $0.10 which would take you up to $0.80 on the dollar, 80% loan to value, they would loan you that extra 10% in order to do the rehab. Some banks don’t require you to put any of your own money in that deal. Don’t be concerned about having to talk to a lot of banks. Look around for community type banks and local banks.

 


 

Don’t forget to let me know in the comments which questions you have about investing in real estate! As always, if you’re interested in diving deeper and you want more content, resources, and help, check out my real estate products!

Billy Epperhart
Billy Epperhart
jordan@billyepperhart.com
18 Comments
  • Sophie Du Plooy
    Posted at 04:30h, 25 January Reply

    Hi Billy

    Can you just summarise on the different options above and also tell me what is a down payment. And from your own opinion. Which is the best option?

    Regards

    • Hannah Grieser
      Hannah Grieser
      Posted at 09:28h, 26 January Reply

      Hello, Sophie! Thank you for your question. A down payment is the money paid upfront to purchase a home and is expressed as a percentage of the property’s price. I really enjoy using lines of credit however, depending on your situation, another avenue might make more sense. If you’re really interested in exploring your options, I recommend purchasing Billy Epperhart’s new Strategic Real Estate Investing book!

  • Robert Muensterman
    Posted at 05:05h, 25 January Reply

    Hey Billy What happens to my refi loan if Real-estate values take a 25 or 30 percent Dip going forward ? Will the Bank call my loan?

    • Hannah Grieser
      Hannah Grieser
      Posted at 10:55h, 26 January Reply

      Thank you for connecting with us! Great question! Generally, banks will not call loans when the real estate market takes dips, but it does at times require banks to increase their reserves based on the expanded risk where collateral values no longer support the documented loan to value ratios. If people do not make their payments on time, that would be the first loans a bank would address in this situation. We cannot guarantee that would not happen, of course, but generally, that is not the course of action a bank wants to take. Thank you for being part of the WealthBuilders community! We appreciate you.

  • Tracey Barton
    Posted at 07:53h, 25 January Reply

    Great info! Other challenges that we have experienced are finding a bank willing to loan less than $50k. Another challenge is finding a lending institution to loan for multi-family properties without a large down payment. We live in a very rural part of Kansas, so options are limited for local lending institutions. I would love to hear more about this in a future blog post!

    • Hannah Grieser
      Hannah Grieser
      Posted at 11:29h, 25 January Reply

      Thank you for the feedback, Tracey! We will certainly keep that in mind.

  • Shane
    Posted at 10:39h, 25 January Reply

    Hi there,

    My wife and I are wanting to get into our first home, but the catch is we are self employed (we run a janitorial company). Combined our W2 income right now is 60k. We want to house hack, and maybe get into a quadplex or a home with an in law suite so we need to be able to qualify for more than what’s coming from our W2.

    We’ve heard of bank statement loans. Do you think that’s a good option? From what I read up on, is that those types of loans have hire interest rates and down payment amounts.

    We want to put down as little as possible and get into something that we like and will cash flow for us.

    What are your thoughts in the best loan route we should go about doing this?

    Also, do you have any recommendations of any real estate agents who are also investors in the Tampa area to assist us?

    Thanks in advance!!!

    All the best,

    Shane

    • Hannah Grieser
      Hannah Grieser
      Posted at 10:53h, 26 January Reply

      Hi, Shane! Thank you for connecting with us. We are so glad this information is helpful for you! You are correct in that generally the interest rate and downpayment requirements are higher with the alternative document loans, but it may be worth checking with a local lender that offers those programs to learn what terms are available. We are in a low-interest-rate environment historically, and there may be funds available at good terms comparatively if all the other rations and numbers work. We would encourage you to meet with your local bank, as well, as they at times offer programs that are outside of the standard underwriting requirements for customers that have their other banking relationships with them. At this point, I think learning more about what is available would be very helpful for you. As far as real estate agents in Tampa, we are not familiar with anyone in that market but encourage you to ask family and friends for a recommendation. Thank you for being part of the WealthBuilders community! We appreciate you

  • Bill and Teresa Arellanes
    Posted at 10:45h, 25 January Reply

    Hi Billy. We don’t have any assets. We have a little more than $10,00 saved. Are there any other ways to help increase our down payment? We attended your Real Estate Mastery Program last June and it was amazing. We learned a lot, but have not invested in real estate yet. Our goal is to purchase our first home, whether to live in here in Santa Barbara or to rent out. Are there any opportunities to partner with Dan Dyer in real estate investing?

    • Hannah Grieser
      Hannah Grieser
      Posted at 10:59h, 26 January Reply

      Thank you for connecting with us, Bill and Teresa! We are so glad this information and our RE Mastery Program have been helpful to you. We recommend that you connect to a local mortgage lender and real estate agent in your area, as they will have a solid understanding of the market and what first-time homebuyer programs may be available for you. Also, you can get pre-qualified which will enable you to purchase a home once you locate the right one. There are many programs available that require little or no downpayment, so you may have enough saved to be able to purchase a property. As far as Dan Dyer, he has a thriving real estate business going where he does not generally partner with others in real estate. Thank you for being part of the WealthBuilders community! We appreciate you.

  • Anita Jones
    Posted at 11:15h, 25 January Reply

    Billy: I was thinking of taking some of my 401 money out at 59 1/2 and invest in real estate. Crazy idea? If not, what type of real estate would you recommend I shop for? I don’t see myself doing refurbs… I am thinking something that doesn’t take too much of my time? Is this possible?

    • Hannah Grieser
      Hannah Grieser
      Posted at 10:57h, 26 January Reply

      Thank you for connecting with us, Anita! There are some great options available to use your retirement savings for real estate investing, but it is important to have your CPA and/or RE Attorney review your specific situation and provide the path forward that works best with your financial goals and tax situation. Many RE Investors leverage their retirement through establishing a self-directed IRA for purposes of real estate investing so it is definitely worth looking into. Bill Bronchick is an excellent RE Attorney and part of our real estate coaching team and he has some great information on his website at legalwhiz.com. We encourage you to check that out and Bill also works with people to get that established should you be in an area that he is licensed. Thank you for being part of the WealthBuilders community! We appreciate you.

  • Shavargo Jackson
    Posted at 14:51h, 25 January Reply

    Awesome information! One of the challenge am facing as first time home buyer, is know what to look for. Would it be easier to find a program that assist in first time buyer or a down payment. Want to purchase this year instead of renting. What would you recommend.

    Thanks.

    • Hannah Grieser
      Hannah Grieser
      Posted at 10:56h, 26 January Reply

      Thank you for connecting with us! We are so glad this information is helpful for you! We recommend that you connect to a local mortgage lender and real estate agent in your area, as they will have a solid understanding of the market and what programs for first-time homebuyers that may be available for you. Also, you can get pre-qualified which will enable you to purchase a home once you locate the right one. Thank you for being part of the WealthBuilders community! We appreciate you.

  • Tori MItchell
    Posted at 16:29h, 25 January Reply

    Home equity loan question. What would the terms of the loan be? Does this work the same as a home equity line of credit?
    Thank you

  • Gladys Toure
    Posted at 09:09h, 26 January Reply

    Thank you. Very helpful information. I would like your advice on whether buying, refurbishing and selling OR buying and renting a property as an investor.
    I live in London, UK, where the house prices are high but much cheaper as you go further north. I am looking into buying an apartment, refurbishing and selling it.
    Thank you.

    • Hannah Grieser
      Hannah Grieser
      Posted at 09:16h, 26 January Reply

      Gladys, thank you for your encouragement. And, blessings along your apartment buying journey!

  • Melanie Mchinzi
    Posted at 21:42h, 30 January Reply

    In Zambia home loans are tied into your work contract period for repayment purposes, in short lending institutions would rather loan government employees who have permanent jobs.
    I personally hate loans anyhow and we have been looking to stop renting and buy our first home so we can get on our way to financial freedom.
    Trying to raise money to buy a home as well as pay rent etc has proved difficult. We have three pieces of land with nothing on them which we thought we could offload and use the money to buy our first house.
    What would you advise?

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