Atlanta, GA · Member since 2019 · 45 posts · 34 votes
I own two properties free and clear, with a total value of $750,000. I live in one and rent out the other. I've been turned down for a HELOC by three different lenders (Penfed, US Bank, and Wells Fargo) all because I have a very low debt-to-income ratio. I don't know what to do. I hate thinking about that equity just sitting there, plus I could use a little cash. I'm hesitant to sell the rental, as I use that as rental income. Any advice would be much appreciated.
Investor · Chicago, IL · Member since 2016 · 197 posts · 105 votes
6y
You ever consider doing a cash-out refi on one of them, preferably the one you receive income on since the rent can help pay for the debt service, depending on who you go through you can get anywhere from 70-80% of the value of the property. Also even though you can take out 70-80% you could also take out less if don't want to take out the max.
Investor · Chicago, IL · Member since 2016 · 197 posts · 105 votes
6y
You ever consider doing a cash-out refi on one of them, preferably the one you receive income on since the rent can help pay for the debt service, depending on who you go through you can get anywhere from 70-80% of the value of the property. Also even though you can take out 70-80% you could also take out less if don't want to take out the max.
Investor · Colorado Springs, CO · Member since 2011 · 322 posts · 238 votes
6y
keep shopping around. Maybe try reducing the HELOC.
I believe there are lenders who will way your total net worth in ways traditional lenders may not. I would. However,most traditional lenders will want to see income as opposed to total asset value. Hard money lenders may pay more attention especially if they can get a first position on your second home. Good luck.
@Lisa Sluss I’ve done a refinance on one of my rental houses before where they didn’t look at the debt to income ratio. It’s with one of those private/hard money lenders, rates were reasonable. Conventional loans won’t work for you in this case.
You ever consider doing a cash-out refi on one of them, preferably the one you receive income on since the rent can help pay for the debt service, depending on who you go through you can get anywhere from 70-80% of the value of the property. Also even though you can take out 70-80% you could also take out less if don't want to take out the max.
Income is income no matter the source. It all comes together on the tax return.
Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
6y
Just do a DSCR refinance on your rental property. This would just use the income produced from the rental as the income to support the new mortgage. Very simple of the rents support the mortgage and you have a solid credit score.
Lender · Sea Girt NJ · Member since 2019 · 10 posts · 6 votes
6y
@Lisa Sluss as long as the property has good cash flow and you have good credit you can look into getting a DSCR loan through a HML. I know a lot of investors that have been in your position and just didn't know the product exists.
Property Manager · Winston Salem, NC · Member since 2016 · 63 posts · 27 votes
6y
you should be able to find someone/bank out there. Check with smaller banks. Also there is Goldman Sachs and others out there. I'm not sure how high your debt to income is but you could create a LLC and place your parents, kids if they are old enough in the LLC with you and pay a few dollars to a lawyer and have them place your primary home in your LLC if your lender allows for a assumable loan.
Selling your rental may not help too much. Selling your primary home may help a lot more and down size.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
6y
@Lisa Sluss if you have two properties worth $750,000 there is no reason you can't get some type of loan. Even if they only lend at 50% value, that just means lower risk for the lender. Only way this doesn't work is if you have no income to cover the debt, which means the lender sees no way for you to repay. In that case, you may need to show the lender the money is being used for a cash producing rental property. If the money is just for living expenses, it doesn't work. Just sell in that case.
I think that may be my only option. Thanks for the advice!
Selling the property is not your only option. I agree cash-out refi is a great option in this case, it's all about contacting more lenders. There are many private lenders out there not "BIG BANKS" that will be able to assist you.
Financial Advisor · Duluth, MN · Member since 2012 · 156 posts · 194 votes
6y
Don’t sell the property. You will regret it later. The big box banks are stuck in rigid loan overlays that make it impossible to extract equity unless you fit their model. I ran into the same issues about ten years ago, so don’t get discouraged.
I will never forget the day when I was turned down for a refi on my primary residence from Wells Fargo. The loan was for $250,000 or so. While that was happening, my local bank just approved a loan for one million to refinance some of my small multi units.
I would target regional banks and credit unions. They are more flexible and you may be able to get a portfolio loan or a simple business line of credit. Hit up your network since it is critical to find a business banker that knows what they are doing. Beware of the “newbie” banker.
Rental Property Investor · Melbourne, FL · Member since 2011 · 3k+ posts · 2k+ votes
6y
There is a first position HELOC offered by Caeli Ridge, of Ridge lending that might work for you. Draws can be made for the first 20 years, and then it locks into an amortizing 30 year product.
I have used Ridge for a number of our rentals (both purchase and refi) and when I spoke with her last she mentioned this new HELOC product. She will talk with you about mortgage sequencing, and how to move forward. I highly recommend a phone call.
I think that may be my only option. Thanks for the advice!
When you sell, consider doing a 1031 exchange (obviously, you will sell your rental not the one you live in now 0I am assuming). By doing a 1031, you are able to defer the capital gains taxes and allows you to buy a bigger property with more cashflow.
Rental Property Investor · GA · Member since 2017 · 62 posts · 44 votes
6y
@Lisa Sluss
Hi Lisa,
Sounds like your missing the notion that a heloc takes a look at your entire debt situation. Not what’s just available in your homes. If you have any income at all, you will need to tell the banker that you will be consolidating your other debt into the heloc. This should allow you to get a heloc and since the debt you will be consolidating into your heloc will make your payments smaller, you will be able to get access to money from the heloc amount. What you will have to Forego is lose “nice financing terms on your loans” even if the Rate in the heloc will be greater. Because the payments should be interest only, and your being charged simple interest you will end up looking like you have more money available to allow you to afford a higher heloc amount.
Investor · United States · Member since 2020 · 19 posts · 13 votes
6y
@Lisa Sluss I second what @Quentin Mitchell said. I wouldn't sell one of the properties personally. It's a great rental income source for you, and you own it free and clear. Tons of people do refinancing for the purpose of taking cash out of the equity you have in the property. This is a great option because it will give you some extra cash, you'll still have that rental income coming in, and you'll still own the property. Seems like the best and smartest option (by far) to me, and it's at least worth doing some research on to see if it makes sense for your particular situation.