Refinancing without using tax returns

[Ryan Vatter]

Hey all- My wife an I are newbies to this whole thing and I am thankful for this forum and network of people! I run a construction company and receive a W2 but our 2019 was a rough year for us so our tax returns are sort of ugly. I a having a hard time getting approved for a HELOC on a home we purchased and flipped over the Sumer of 2020. Instead of being able to pull the cash from that to pay our hard lender back we had to pull from savings now leaving us with a decent asset but a ton less cash. I really want to find a way to push this HELOC through and use that to fund our next flip. Any suggestions??? TIA!

[Andrew Postell]

@Ryan Vatter I'll answer your question here but I also wanted to provide some information so you knew more about this subject.

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money. These are the loans that 100% need tax returns to calculate your income if you are self-employed.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.  Now it is still possible for a portfolio type of lender to base their approval on your tax returns but others won't.  Most will base it on the income of the PROPERTY.  Again, I can't speak for every lender here since each place might lend it differently but the point here is that there is flexibility.

So try posting in the state forum here on Bigger Pockets that you are investing in.  Ask for some smaller, local lenders that are "investor friendly".  A regular "cash out" loan might be a better option for you.  Sometimes Lines of Credit on investment properties can be hard to find.

So search for portfolio lending and I think that will get you on the right track. Thanks!