Bank won't move forward with the HELOC

[Dolev Zaharony]

Hi all,

I have 3 rental units and trying to get the 4th. We are looking to do HELOC on our main home and use that for it. My loans are in my personal name, but I recently transferred the deeds to my LLC. Since the loans are under my name, my debt to income is pretty high and the credit union is not willing to accept my tax return in order to show that these are all rentals and generate income. So they are not willing to move forward with the HELOC until all of my rentals are not showing under my name in the credit report.

Is there a way around that? Can I just call the lenders and tell them to change it from my name to my LLC? Will they ask me to pay the entire loan first?

Thanks in advance!

[Anastasia G.]

@Dolev Zaharony Hello!

Unfortunately getting a Heloc is the same process as if you were getting a traditional mortgage, your credit line will depend on combination of the total debt you carry and total income - DTI (debt to income); you income must be high enough to sustain multiple mortgages, consumer debt AND Heloc debt. You might want to review your consumer debt and see if there is something you can pay off to help increase Heloc line..

Transferring property into name of LLC will not exclude mortgage payments from your DTI calculation. When property in the name of LLC - you cannot commingle funds, meaning you would want have separate bookkeeping done - rents/mortgage payment from a separate account.

If you can demonstrate that mortgage has been paid by LLC out of LLC accounts for at least 12 months lender might be able to exclude liability from your ratio (rents all need to go into LLC account versus personal. Hence commingling is a no no)

Calculating Rental Income to increase "purchasing power" will depend on the following:

1) if property was acquired in prior calendar year and Schedule E supports this by number of days in use - current lease can be used

2)If property was out of service for any period in prior year and can be documented such as renovation, Schedule E of your tax returns support number of days in use and reflects the repairs - then  current lease can be used

3) if neither of 1 or 2 applies, then 2 years of Schedule E - NET monthly rental/income loss. In my experience investors report excessive expensed to reduce tax liability which in turn hurts us on the mortgage side, however we can add back non cash related items and other items that are part of mortgage payments, calculation will look something like that:

I would ask to loan officer to provide the breakdown of income/debt to see how they are analyzing it; You can also find what income calculation is used on your 1003 form:

here is where you can find debt breakdown:

I would calculated your DTI based on that and raise any questions..

If you do not succeed with Heloc this year for whatever reason I highly recommend to work with your Loan officer and CPA to do some tax/mortgage planning in the 4th quarter to estimate what your borrowing power can be for the next year. .. Hope this helps..  Feel free to reach out with any questions.