This is my current situation, can I get a HELOC?

Question

I currently own and rent out a SFH to great tenants in New Orleans worth approximately 270K. I rent a small apartment in New Orleans b/c financially it makes more sense. I owe 118K on first mortgage and 18K on second mortgage, home equity loan. I applied for a HELOC for 60K to at Capital One 360, owner of second mortgage. They are aware that I am basically converting this HE Loan into a HELOC. They pulled my credit score, which was over 800, well above what they require, and I provided all the documentation they requested. This is a fairly straightforward process, or so I thought. I just got a letter back saying my loan was denied. I was planning on paying off the 18K here shortly and using this money to help purchase a second investment property. No one from Capital One 360 will call me back, and I have no idea what the problem could be.

Can you take out a HELOC on an investment property? That seems like a silly question, but I thought you could? Does it matter that this home is not my primary residence? I didn't think this was a problem? Does anyone else see a reason why, based on the info I provided, my loan would be denied?

Thank you!!

Scott

Mike Wood · Answer

Account Closed Given that you do not live in the house as an owner occupant, you're not likely to have much luck finding a HELOC. Your property is an investment property now and that's the most likely reason you were denied, and I would assume most banks would do the same. You could try talking to a commercial banker to see if they would given you a line of credit on the house. Or you could do a cash out refi (typically max LTV of 75% on SFR), but your rate will go up since you most likely have an owner occupant loan rate now. Be honest with the bankers, so that you are not wasting both of your time. I also would suggest working with local banks. They are much more responsive, you can talk to them or meet them in person, and its in their best interest to make sure everything works for you and them. Big banks only try and fit square pegs in square holes, if your not a square peg, they will not help you.

Marc Bresseau · Answer

Scott Lovitt Michael Moheng I was able to get a HELOC in Florida on an investment property. They will do 75% loan to value. I hope this helps anyone who needs it as I had a difficult time finding a lender.

Mike Wood · Answer

Account Closed mentioned, you can easily get a investor residential loan for this house. If you do a cash out finance, you will be should be able to go to a loan to value of 75% of the appraised value. That will pay off the existing loan, and get cash in your pocket. Your rate on a 30 year fixed will be 0.5-1.0% higher that owner occupant residential loans (depending on credit). Call around to local banks and see who does investor loans on 1-4 unit houses. I would not do hard money given that you can get a conventional loan.

Brent Coombs · Answer

Account Closed, if it appraises at $270k, and you owe just $136k (some of which is already at 8% interest), then, yes, you SHOULD be able to find a Lender who will let you borrow 75% of its value, which would pay off both your current mortgages and leave you with about $60k in your pocket, ALL of which you could re-invest - which is better than you hoped for at the start!You can ask for a conventionally secured investment loan, rather than an ELOC. All the best.Hopefully your experience has taught you that Lenders don't always ask the right questions!...

Account Closed · Answer

Thank you everyone for the input! I have been blown away by the number of responses to my posts as well as other member's posts.Thanks @John Verduzco, I just looked into TD Bank....I guess they don't do business in Louisiana. I will keep looking though....appreciate the help!!@Michael Moheng, Wells Fargo is who I have the first mortgage with.....I will call them on Monday and see if I can get a HELOC through them. Too bad interest rates just went up 0.75 percent this past week. I will let you know how it goes....thanks!!

Account Closed · Answer

I apologize for the late response.....thank you @Abdul Azeez and @Mike Wood, I appreciate it!FIGURED OUT WHAT HAPPENED THOUGH!!@Reginald Wallace, I was trying to convert to a HELOC to pull cash out and purchase another rental property with cash, and a bonus was that my interest rate would be going from around 8% to about 4%. I had no idea that I couldn't get a HELOC or refinance my HE Loan on SFG rental property. I don't even thing the person at Capital One asked me if I lived in the home when I applied - we did it all over the phone and it was supposed to be fairly simple process since I already had a HE Loan....they were just going to convert it to a HELOC.....they just needed to verify my income, insurance and property taxes. Well, I found out that when I put in a change of address after I moved out of the property, all the address on my insurance paperwork had my new address, and here is the best part, the parish dropped my Homestead Exemption b/c they got a change of address card sent to them when they sent my last property tax bill to me. When receive notification that someone has changed addresses, they automatically drop the homestead exemption if they have one on the property. I went to the assessors office and got it added back on, but the parish website doesn't reflect changes until 12 weeks later. So guess what happens next? They send an appraiser out to the house, which I was told they were not going to do, however they did it anyway. One of my tenants is a 95 year old grandmother, and she tells the appraiser that they are renting the house. The appraiser tells Capital One this, then they ask me if I am living in the home. I tell them I am not, that it is rented out, and that's why they couldn't approve the loan! Whewww, that was a lot.I found out yesterday that I have a relative who lends money out to people, I guess you call that a hard money lender.....he lends money out at like 18% or more......anyway, he is willing to give me an interest only loan at 5% for up to 9 months if I put between 20-50% down. Is this a good rate for an interest only loan?Thanks!Scott

Damon Dumas · Answer

Scott, it will be very difficult if not impossible to find a lender that will do a HELOC on an investment property. It's all about the risk that they will have to take on. The HELOC is already a risk because it's in second lien position. Adding even more risk with it being an investment property.The 5% interest only option that the family member offered you is an excellent deal! I lend hard money and my lowest rate for the most perfect situation is 7.50%. I would borrow money from the family member if I were you.

John Verduzco · Answer

we have done several loans on our single family rentals including conventional (30 year fixed) on 1-4 and 5-10. We have struggled to find 2nd position HELOCs on those but had some success. They are typically low cost (appraisal only) interest only with a draw period then pay back period. Just have to way a cash out refi cost and rates and cash flow vs HELOC and its flexibility to be used like a credit card and pay back more quickly if you desire. We used TD Bank on our HELOC. They did 75% LTV.

Michael Moheng · Answer

I'm new and doing research as well on this. From what I understand there are banks that will do HELOCs on rental property, I've seen people call out Wells Fargo for doing them. So you may still be able to get it.

Reginald Wallace · Answer

Im very excited for you. Too many people hear challenging [disappointing] news and give up. Im glad a method to obtain your goal has presented yourself. That was a long story btw lol. The following Ykutube videos should provide you proper expectations when dealing with hard money. As for the rate, I cannot not say whether its a good rate or not [I would be crossing into the realm of originator] but I can say that hard money loans are typically priced at a higher rate mainly because they are usually shorter term loans; the lender knows that you are likely to get it refinanced after upgrades (BRR Strategy)Watch the following in the sequence provided.1) This guy does a great job of providung the birds eye view of Hard Money vs Traditional Bank lending for investment property.[Kurt Carlton on Basics of Hard Money]https://youtu.be/oIXyrUZtWXo2) This video is very informative about hard money [BP interview with Kevin Amolosch]https://youtu.be/-1N-EJrA4t43) The video below speaks on strategy of using hard money[Show 009 w/ Ann Bellamy]https://youtu.be/6mNu6S-ZHWUKeep me posted.