Boston MA Home Equity Line, Commercial

[Chan K.]

Hi Commercial RE Investors,

I have a question regarding home equity line of credit or HELOC.

Here is the scenario:

I went to a local bank asking for a line of credit on my 6-Unit. The lender would offer me an 80% LTV of the appraisal value. I really like the 80% part, so I proceed with them. I want the appraisal to be by income instead of comp, so he said that the fee will be a bit higher than comp ,$1200. FYI: typical fee is $750-$1000. Long story short, the credit line took about two months to close. The closing cost came out to be about $3k. The line is revolving for 1-year and be reviewed annually.

My question is:

1) Does it usually take this long to close on a credit line? For God sake, it usually only takes me about 1 month ish to close on a house, in which is a lot faster.

2) Does the closing fee usually costs this much, $3k?

3) Is the 1-year revolving and being reviewed annually are typical term is typical?

4) Does the 80% LTV easy to find? I thought this 80% and the income evaluation method are the only good things that came out of my whole process. Most lenders would only do 75% or less.

5) Why does a lot of lenders still appraise by comp when it is a 6-unit? I could never understand this. I thought that anything more than 4-unit is automatically be appraised by income.

Thanks ahead for sharing your input.

-Chan-

[Chris Winterhalter]

@Chan K. 

Because it's a commercial loan it's much different than a conventional HELOC or mortgage loan.

You essentially are getting a commercial LOC secured by your property. And yes costs of 3k are rather normal on a 6 unit (the bad thing is they would be similar on a 10-20 unit property so you get hit the worst at the 5-10 unit range).

Timeframes can range greatly, depending on the bank, your relationship, backlog of their appraiser network etc etc. The commercial LOC essentially takes the same amount of time as a refinance CRE loan, and comes with similar costs.

Most smaller multi-families are evaluated by income & sales approach.  You will generally get an opinion of value from the sales approach and then by income approach.  They might blend the two for the final number.  The bank might pull more from one or the other.  

How big is the bank?  What's your interest rate?  Do you have a plan for the available cash?  If you are going to deploy the capital somewhat quickly <1 year it might have been better to do a term loan.  What did the bank charge in the way of fees beyond appraisal?