How to get a HELOC on a rented Condo

Question

I currently have two properties, one SFR I'm house hacking and a condo in a metro area that I have rented via Airbnb in the past and regular long term renters after that.

I only owe about $87,000 on my Condo, and its worth about $250,000. That's a pretty good chunk of equity I could use to finance my next deal, preferably an off market cash deal for a BRRRR property.

I recently refinanced my SFR (paying $100 less a month, and cut off 5 years on the term, win!), and while doing so, I tried to get a HELOC as well (both through US Bank). Unfortunately, even with my 800+ credit score, and a DTI ratio below 15%, they would not give me the HELOC because the Lexus report turned up that someone was renting it. Am I SOL because I rent that place out, even though I have massive equity and outstanding credit?

So I was thinking that my next step should be to start going to local banks and credit unions and seeing if they could work something out with me.

What would be the best way to go about this? Just start cold calling banks and asking if they offer HELOC? This is my first time dealing with a HELOC, so I don't want to look like a dumbass and get turned away. I was thinking I could come in there with all my excel spreadsheets and financials, showing them I know what I'm doing, and doing well in my small, yet growing, REI business.

Does anyone have any good tips or "dos and don'ts" on getting a HELOC?

Nghi Le · Answer

@Taylor Redden

Ahh, so you're looking to get a LOC on your existing rental to buy a new property, and then later on finance that new property with conventional financing.  I was thinking you're going to put a LOC on your rental and then later on put a mortgage on that too.  My mistake.

I did some research on this a while ago too, although more local to my area.  But a national bank that did come up with PenFed.  You might want to give them a try.  They are offering 80% LTV up to $400k on investment properties.

Cody Nelson · Answer

I've been in a similar situation here in Seattle and have read about nobody lending ELOC on investment properties. My suggestion is to take your spreadsheets with you and start making the rounds of local banks/credit unions, refusing to take no for an answer. It just takes one institution and once you find them, you've probably found a lender for future deals.

Be tenacious! Feel free to PM me and I'll give you some more ideas that seemed to work for me.

Dmitry Marutov · Answer

Thank You @Taylor Redden

Appreciate the insight.  Ill provide an update on the my experience and the route i choose to take.

Taylor Redden · Answer

There are definitely lots of different thresholds for loans when it comes to owner occupancy. I believe conventional loans require something like 50% owner occupancy, while FHA now only requires 30% (if other requirements are met, like HOA reserves). I never even made it this far in the conversations I had with other banks. :(

Dmitry Marutov · Answer

@Taylor Redden

I'm dealing with a similar situation now and just wanted to know if you dad success securing a HELOC.  A major obstacle that I'm encountering is the owner occupancy vs renters ration.  If the condo building contains less than 50% of owner occupied units, banks that I've spoke to refuse to go further.  Is this something that you have experienced as well?

Cameron Davis · Answer

Wells Fargo will NOT do a HELOC  if you have more than 4
 investment properties... even if you own them all  free and clear! (no 
mortgages on them!) I wasted hours with them, and got my credit dinged 
because at first they told me they could do it.  Plus, they are a 
horrible company... they are continually being sued and fined  by the 
government. I'm going through PenFed now.

Muroo S. · Answer

Hi @Taylor Redden,

I'm in the same boat where I house hack my primary SFR in shoreline and has 1 rental condo in North Seattle. I have been calling and visiting local banks and credit unions and last week I found that Verity CU has a Heloc product for investment property (one property per investor).

Good luck

Dale T. · Answer

Your best bet may be to contact a commercial lender at a locally owned Bank and get a commercial RLOC.   If the Bank is involved in investor residential real estate financing, they may also finance your discressed property after you have bought the property.

Taylor Redden · Answer

Well, I'm looking to get a distressed property that might not qualify for financing. I'd like the ability to make cash offers to motivated sellers that can close quickly. If I can get a HELOC, I could use it to make a "cash" offer on a distressed property. Then I can move in and work on the house for 9-12 months paying on the HELOC, then once its in better shape to qualify for a bank loan (and hopefully after some forced appreciation) I can get it into a more suitable long term note.

Nghi Le · Answer

Yeah, try going for credit unions or your smaller banks. There are some that will do a LOC on a rental, but with lower LTVs.

If your plan was to get a mortgage on it within a year, why not put a mortgage on it now? It'd save you some money (since some HELOCs charge loan fees and early termination fees) and will be better for your credit.

Getting a HELOC takes about as long as a mortgage now anyway, so I can't think of any advantage why you'd want a HELOC first then a mortgage, unless I'm missing something?

How to get a HELOC on a rented Condo

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