Issues with HELOC financing?

Question

I have about $200k in HELOCs and used them to make a cash offer on a property and then I can refinance into commercial or traditional mortgage after shopping around a bit.

I have run into a problem with underwriting a couple of times now. My loan officer hasn't told me the exact rule, but essentially they are asking whether I bought the house with cash or with credit. They need to make sure their refinance goes towards paying down the credit. Since the HELOCs are just part of my normal banking, there is not a way to guarantee that their refinance will go to the HELOC and not just to my checking account. I have had this conversation with a commerical and a traditional lender now and it could be a deal breaker for the refi.

I thought using HELOCs for financing would help me make deals easier, but this is being a headache. Anyone else have a similar experience in have strategies to use HELOCs to optimize their investment property purchases?

Shaun Weekes · Answer

The most common overlays are reserve requirements. It sounds like you have a good grasp of what's going on. Just document the draws and provide a paper trail and you'll be fine.

Brandon Sturgill · Answer

@Page Weil Cash-is-cash...so to speak...sounds like you are paying directly from the HELOC account...rather than taking the cash from the HELOC and dumping it in an unrelated checking account...irrespective, the lender will likely uncover where the funds came from in their due diligence. And your DTI is impacted by the 2nd lien you've maxed out to purchase real estate...it's not a really sustainable scenario.

Shaun Weekes · Answer

You can use a HELOC and then refinance using the delayed financing rule. If you took 100K from each HELOC and you do a cash out refinance for 250K here is the breakdown.

100K goes to HELOC number 1

100K goes to HELOC number 2

50K goes wherever you want it to go

You have a record of the draw used to by the home cash, so this is an easy fix. The problem you're having is that your Loan Officer or Broker isn't versed in delayed financing most likely.

Get your draws and show that the money came from a HELOC. This is 100% acceptable if your lender follows Fannie guidelines and doesn't have any OVERLAYS.

Also, note that the Underwriter will treat both HELOC as though they have been maxed out for DTI purposes. I hope your Loan Officer put that into the equation before executing all this.

I hope this helps.

Page Weil · Answer

@Shaun Weekes thanks for the insight, this is helpful. I assume you are referring to the Delayed Financing Exception from Fannie Mae's site?

I bought the home using the HELOCs already, so the debt in those is being considered in my DTI. After talking to the loan officer, it sounds like there might be some reporting requirements related to when the money was drawn from the HELOCs (proof that the money was drawn and then wired to the Title company for the original purchase). But it didn't seem like this was a dealbreaker.

Also, what do you mean by overlays? From Googling it sounds like that is a generic term for "this lender has extra rules they follow". Are there any common overlays you have dealt with?

Issues with HELOC financing?

Issues with HELOC financing?

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