HELOC on Duplex when it is a Primary Residence on a VA Loan.

[Adam Joseph Reed]

What's up BiggerPockets! First post here. I have a question for you folks.

In 2020 I bought a duplex for $300,000 with my VA loan at 100% LTV. Last year I refinanced it with the IRRRL at 2.25%. In the last few months there have been comparable sales that have closed in my county at $549,000. Assuming my home would also appraise for $549K, that would leave about $255K in equity.

I am looking to take out a HELOC so that I can create some options to buy more real estate with. I have many ideas and several paths I could go, but the first step is to open up a HELOC.

I spoke with a local bank, First Citizens Bank to open up a HELOC. The draw to them was the 89% LTV. When I spoke with them, they said they could not open up the HELOC because it is not solely a primary residence. They wouldn't loan because I receive long term and short term rental income from the property.

The second bank I spoke to was United Federal Credit Union. I had heard they did HELOCs on rental property at 80% LTV so I started the conversation with them. They also would not approve the HELOC because even though my long term tenant covers all but $25 and I received STR income when I am away from my primary home, they wouldn't open the HELOC because I live there.

These responses seemed like a Catch 22 and I am not sure how to proceed.

Which leads to my questions:

1. What Lenders might approve a HELOC on a primary residence receiving rental income?

2. If I can't find one that will do it, should I shift my focus to just buy another primary residence with the remaining VA eligibility then apply for the HELOC again?

3. Or should I refinance the duplex at a higher interest rate and pull out my equity and buy other real estate with a 20% down payment on more than one property? I think this would free up my VA loan to make another purchase, as well as a higher return on equity.

4. Or a combination of #2 and #3?

5. Just hang tight and continue to pay the mortgage?

Thank you for reading these semi complex questions. I am open to any and all feedback as I get clear on a game plan moving forward. 

Onward and Upward. 

[Katherine Serrell]

Hi Adam! Just messaged you. I am a conventional lender and love working with creative financing. I personally have went through the red tape you are describing and know how hard it is to deal with the nuances of needing to qualify with primary residence rental income (I have short term rentals, househacked them all, long story short). I am happy to help in anyway I can. I am pretty sure we could do better and likely can swing an approval of a HELOC on the primary #1. That being said, if you can make that happen, no reason why you shouldn't pursue #2/#3 immediately after to leverage the rest of your VA eligibility and your equity that is just sitting in your existing properties and put that to work for you.