Hi folks, I have some comments/questions regarding how to best prepare when applying to a heloc.  For the last two years, I applied to a heloc at the same bank and was basically laughed out the door.  This year, I was very much welcomed and my heloc was finalized this week in record time.  The difference?  Work that my accountant did to clean up my Schedule E.  

Turns out, heloc underwriters are trained to use the Schedule E as one of their main sources of information, more so than any leases or receipts you might include as part of your application.  This is because the Schedule E is obtained independently, and few people would inflate their rental income in that form (and pay more taxes than they should).  I understand underwriters add up all categories except Mortgage Interest, Taxes, Insurance, and Depreciation - everything else is counted as expenses for the property.  

Up to now I aimed to maximize the Repairs and Supplies categories of my Schedule E, to make sure I have as large a deduction as possible.  This is fine for deductions, but it looks terrible in a loan application.  What my accountant did is, she declared most of these as Capital Expenditures, then she turned around and depreciated them in one year per the 2017 tax cuts and jobs act.  Since the underwriter ignores the Depreciation category, the expenses disappeared, voilà.  

What other advice would you give someone preparing to apply for a heloc or home equity loan?  These second position loans are becoming ever more important, since nobody wants to give up their 3% primary mortgage.