HELOC denied for improper use of funds

[Kevin Barnett]

I had applied for a HELOC with WF. My intent was to keep this money available for rehabbing projects (paying hard money lenders points, reserve funds for overages, etc.) Everything was going great and I was approved for $50,000. Then yesterday they told me they were going to reject my application because I told them I wanted the credit because my wife was starting up a home based business and needed that for reserves. I didn't state the nature of the business or anything so that was a true statement. But I thought it might scare them if I specifically stated it was a flipping business.

Before I go back and reapply elsewhere, does anyone have suggestion on stating my intended use of the funds? I can tell them I want to use it to pay off credit card debt but:

1) They know how much debt I have from my credit report. I want to borrow much more than my debt so if they ask why don't I just borrow enough to pay off that debt, I don't want to have to try to stumble and come up with a new explanation.

2) I don't actually want to pay that debt off right now and do not want them to pay it off for me. I don't know if they will or not, I just want them to open the credit line and let me do with it what I decide.

Anyone have any advice on what to tell them as my reason for requesting the credit line?

[Kyle J.]

I have gotten HELOC's with different banks (including Wells Fargo), and I've learned two things are usually true: 1) They are going to want to know the intended use of the funds, and 2) They'll generally have some sort of criteria for the permissible and non-permissible use of the funds. It will vary from bank to bank, but some examples of non-permissible uses that I've actually been told by loan officers are "The funds can't be used for business" and "The funds can't be used for educational purposes". (Odd, I know.)

I always ask up front (before I apply) so that I know if it's worth my time/effort to even apply with that particular bank. 

What worked for me with Wells Fargo (and others) was to say the funds are simply for "cash reserves" (nothing more). This suggestion actually came from the Wells Fargo loan officer and my HELOC was approved.