Taking out HELOC from our home when we are renting the MIL basement

[Jordan James Redford]

Last year we took out a HELOC on our previous home around this same time. We then rented that out and purchased our current home. We used our HELOC to model the basement into a MIL and are renting it out. We wanted to take a HELOC or loan out on this house now with the appreciation and added value of the basement, but were told we can't do that because we are renting out the basement.
I've looked for rules and haven't seen that anymore. Am I missing something, or do we label it as HELOC on an investment property since it is our main residence, but are also renting?

[Jason Wray]

Jordan,

You might want to consider doing a cash out refinance because a HELOC carries a lot of investor burdens. You are also going to have an almost impossible time taking out a HELOC on a rental property. HELOC rates are as high if not higher than 30 year fixed rates right now so it may be a better idea. Most people hesitate due to a low first mortgage rate but that is not a good enough reason to not use equity in your home.

Especially if you are buying more rentals creating more passive income and lastly refinance for a lower rate in a couple of years. When you calculate the blended rate between the low first rate and HELOC versus the 30 year refinance in most cases the refinance makes more sense.

If you live in this home but rent the basement there should not be an issue with the lender or bank.  Unless you have a confused loan officer or lender with excessive overlays.