Denied for a Heloc? Still not sure why?

Question

Hello, I don't post on here very often, but I'm not sure where else to turn. We just got denied by a Bank in Saint Cloud. The property we are looking take a Heloc out on is in Sauk Rapids, its worth about $170,000 We own it for $81,000. The banks reasoning was that my credit score is kind of borderline (660), we have purchased too many properties to quickly, and it raises flags? They said I should just wait 9 months to a year and reapply?

Is this normal? I have purchase 6 properties since 2015 we sold 2 a profitted from both, so we own 4 rentals. I asked if my credit was better would it help, she said it won't help, I just need more time?

I would prefer interest only, it keeps expenses down for more lending.

Mary Anderson · Answer

Hi Kenneth,

Is the property that you are attempting the HELOC on your primary residence?  I am a branch manager of a credit union in MN.  I would suggest trying a credit union as we tend to look at the borrower as a whole, not just score.  Escalating debt can be a red flag but if you are showing profit on the properties, I don't see a need to wait six months.  However, the credit union I work for only does HELOCs on owner occupied properties.

Best of luck,

Mary

John Woodrich · Answer

@Kenneth Morff I am guessing DTI is also the issue. Because of your "recent" purchases they may not be able to use the rental income to qualify you for more debt. That is the only reason I can see why "waiting" will change things. Banks differ on this, some want to see 2 years of rental income reported but if you are considered and "experienced" investor they will take it right away. WF was able to include my rent income from a month to month lease I started the month before.

I would talk to @Tim Swierczek, he is a local lending expert and knows investments because he also invests. Maybe he can put something together for you.

I would talk to @Tim Swierczek, he is a local lending expert and knows investments because he also invests.  Maybe he can put something together for you.

Tim Swierczek · Answer

@Kenneth Morff It sounds like a few more details would be needed to dicesct the situation.  I suspect you may have a significant or all of your income rapped up in the success of your new real estate ventures.  If this is the case most community banks look to see your performence before they get to deep into lending to you.  You may find another lender will be more forgiving but others comments about DTI might be a big factor.  The need for cash when investing in RE can be great and that often leads investors to finance rehabs with credit cards and run up debt in general.  These strategies can be key to short term growth but lead to long term risk.  Your lenders are watching what you do right now, and the best thing you can do to give them confidence is to live conservatively and do your best to elimiate non-auto consumer debt.

Sam Shueh · Answer

It is probably debt to income ratio. Income meaning just 75% actual received rent etc....  The borrowers with less than mid 700s often have too much debt, late payments. Try a credit union for these small HELOCs.

Joseph Hammel · Answer

Try Royal Credit Union. rcu.org they have a product called a prime line. Or local banks.

Andrew Postell · Answer

@Kenneth Morff Bigger Pockets does have a Minnesota forum. Maybe try posting in there to see if any locals can offer some guidance on good lenders for this type of a product.  Hope this helps!

Dennis Tierney · Answer

@Kenneth Morff I agree with others that you need to shop more banks. Since you want interest only it may make more sense to get a business plan set and take it to the banks to get a business line of credit which are more likely interest only.

Steven Kleppin · Answer

@Kenneth Morff judging by her reasoning that an increased credit score wouldn't help... she's basing her "no" on DTI.

Also, HELOCs on a rental property are typically harder to get. If you fall on hard times, you're more likely to pay your home's mortgage than on an investment property (so the reasoning goes). Have you looked into a refinance to pull the money out?

Nicole A. · Answer

@Kenneth Morff I would suggest what Jaysen said. Call (or go to in person, really) several local, small banks and start talking with them. Talk about what they can offer. Talk about your financial picture. Do you have a lot of debt? That might be part of the problem.

Also Google local REIA groups in your area if you don't already go to those and attend some meetings. Meet other investors and lenders in the group. Best of luck!

Jaysen Medhurst · Answer

@Kenneth Morff, if I were you I'd start calling up every local bank and credit union asking about their HELOC requirements. Even if you just did 70% LTV, you'd have ~$40k to work with. What about the banks you have he investment mortgages with? You're already a customer and they can see that your investments are solid.

Next look at your Debt to Income (DTI) ratio. Besides your mortgages, do you have any outstanding debt that you can pay down more quickly? Might be worth using the cash flow from your rentals for this purpose in the short run.

Denied for a Heloc? Still not sure why?

Most Popular Reply