Heloc denied due to room rental

[Victoria Morrison]

Hi all! I recently applied for a Heloc but was denied due to renting a room in a 2 room primary residence. Is this common? I was told it was due to the property being "multi-purpose" and not in line with Fannie Mae guidelines. Any tips on how to apply for a Heloc while renting a room? 

[Melissa Maw]

Given that most lenders abide by Fannie Mae guidelines for HELOCS (which is for your primary home), they generally do not allow use of any rental income on your primary residence to count towards your DTI. Depending on where you are located, I would try to find a smaller lender, perhaps a portfolio lender/community bank that has their own underwriting guidelines. Second, while a HELOC offers flexiblity in terms of paying interest only when you use the line, the interest rate is going to be a lot higher compared to a regular cash-out refinance. If you know what, and when you need to use these funds for, I would consider a refi instead.