Bank won't move forward with the HELOC

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Bank won't move forward with the HELOC

Dolev Zaharony
Member since 2022 · 23 posts · 2 votes

Hi all,

I have 3 rental units and trying to get the 4th. We are looking to do HELOC on our main home and use that for it. My loans are in my personal name, but I recently transferred the deeds to my LLC. Since the loans are under my name, my debt to income is pretty high and the credit union is not willing to accept my tax return in order to show that these are all rentals and generate income. So they are not willing to move forward with the HELOC until all of my rentals are not showing under my name in the credit report.

Is there a way around that? Can I just call the lenders and tell them to change it from my name to my LLC? Will they ask me to pay the entire loan first?

Thanks in advance!

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Anastasia G.
Lender · NJ NY PA CT GA FL, Puerto Rico · Member since 2015 · 213 posts · 111 votes
4y

@Dolev Zaharony Hello!

Unfortunately getting a Heloc is the same process as if you were getting a traditional mortgage, your credit line will depend on combination of the total debt you carry and total income - DTI (debt to income); you income must be high enough to sustain multiple mortgages, consumer debt AND Heloc debt. You might want to review your consumer debt and see if there is something you can pay off to help increase Heloc line..

Transferring property into name of LLC will not exclude mortgage payments from your DTI calculation. When property in the name of LLC - you cannot commingle funds, meaning you would want have separate bookkeeping done - rents/mortgage payment from a separate account.

If you can demonstrate that mortgage has been paid by LLC out of LLC accounts for at least 12 months lender might be able to exclude liability from your ratio (rents all need to go into LLC account versus personal. Hence commingling is a no no)

Calculating Rental Income to increase "purchasing power" will depend on the following:

1) if property was acquired in prior calendar year and Schedule E supports this by number of days in use - current lease can be used

2)If property was out of service for any period in prior year and can be documented such as renovation, Schedule E of your tax returns support number of days in use and reflects the repairs - then  current lease can be used

3) if neither of 1 or 2 applies, then 2 years of Schedule E - NET monthly rental/income loss. In my experience investors report excessive expensed to reduce tax liability which in turn hurts us on the mortgage side, however we can add back non cash related items and other items that are part of mortgage payments, calculation will look something like that:

I would ask to loan officer to provide the breakdown of income/debt to see how they are analyzing it; You can also find what income calculation is used on your 1003 form:

here is where you can find debt breakdown:

I would calculated your DTI based on that and raise any questions..

If you do not succeed with Heloc this year for whatever reason I highly recommend to work with your Loan officer and CPA to do some tax/mortgage planning in the 4th quarter to estimate what your borrowing power can be for the next year. .. Hope this helps..  Feel free to reach out with any questions. 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    4y

    @Dolev Zaharony

    It doesn't work like her unfortunately (switching a mortgage to LLC) as who is to say you would do that and walk away and the LLC has no assets…

    Only way to get them out of your personal name is to refinance.

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    0Reply
  • Sergey A. Petrov
    Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes
    4y

    If you are trying to get a HELOC on your primary they are looking at your total income. Pass through single member LLC or personal shouldn't matter much. It sounds like the rentals may not be as profitable as you think (depends on how they see it and account for it) and your regular (W2?) is not enough to subsidize the negative cash flow with a variable rate HELOC…

    0Reply
  • Dolev Zaharony
    OP
    Member since 2022 · 23 posts · 2 votes
    4y
    0Reply
  • Dolev Zaharony
    OP
    Member since 2022 · 23 posts · 2 votes
    4y

    Thanks,

    The rentals are actually very profitable - but they don't really care about that. Not sure why

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    4y

    The lender sees 3 loans in your name but no real estate income because the title is now in an LLC. When you next report income tax return shows the pass through income from the LLC that should offset the mortgage expense. So your options are

    1. Explain this to the credit union and see if it makes a difference

    2. Apply at another financial institution explaining the above

    3. Utilize a mortgage broker and explain to him and let him find a loan for you

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    2Reply
  • Anastasia G.
    Lender · NJ NY PA CT GA FL, Puerto Rico · Member since 2015 · 213 posts · 111 votes
    4y

    @Dolev Zaharony Hello!

    Unfortunately getting a Heloc is the same process as if you were getting a traditional mortgage, your credit line will depend on combination of the total debt you carry and total income - DTI (debt to income); you income must be high enough to sustain multiple mortgages, consumer debt AND Heloc debt. You might want to review your consumer debt and see if there is something you can pay off to help increase Heloc line..

    Transferring property into name of LLC will not exclude mortgage payments from your DTI calculation. When property in the name of LLC - you cannot commingle funds, meaning you would want have separate bookkeeping done - rents/mortgage payment from a separate account.

    If you can demonstrate that mortgage has been paid by LLC out of LLC accounts for at least 12 months lender might be able to exclude liability from your ratio (rents all need to go into LLC account versus personal. Hence commingling is a no no)

    Calculating Rental Income to increase "purchasing power" will depend on the following:

    1) if property was acquired in prior calendar year and Schedule E supports this by number of days in use - current lease can be used

    2)If property was out of service for any period in prior year and can be documented such as renovation, Schedule E of your tax returns support number of days in use and reflects the repairs - then  current lease can be used

    3) if neither of 1 or 2 applies, then 2 years of Schedule E - NET monthly rental/income loss. In my experience investors report excessive expensed to reduce tax liability which in turn hurts us on the mortgage side, however we can add back non cash related items and other items that are part of mortgage payments, calculation will look something like that:

    I would ask to loan officer to provide the breakdown of income/debt to see how they are analyzing it; You can also find what income calculation is used on your 1003 form:

    here is where you can find debt breakdown:

    I would calculated your DTI based on that and raise any questions..

    If you do not succeed with Heloc this year for whatever reason I highly recommend to work with your Loan officer and CPA to do some tax/mortgage planning in the 4th quarter to estimate what your borrowing power can be for the next year. .. Hope this helps..  Feel free to reach out with any questions. 

    4Reply
  • Dolev Zaharony
    OP
    Member since 2022 · 23 posts · 2 votes
    4y

    Thanks everyone for the info. Very helpful! 

    I guess there is no easy way here to access the HELOC this year. Will work with my accountant and loan officer to see what we can do.

    0Reply
  • Jonathan Mertens
    Rental Property Investor · Münster · Member since 2022 · 20 posts · 14 votes
    4y

    @Dolev Zaharony I had it recently that my brother wanted to buy himself into one of our investment properties. Doing so, he would also be added to the mortgage (logically). After handing in all the necessary documents with the mortgage lender and the notary to get it finalized, the mortgage lender literally said 'No.' for the only reason that he lived in another country. We live in Europe and our investment properties are in the Netherlands. My brother literally lives 15 minutes away from the property, there's just the border with Belgium in between... 

    So, we simply ended up doing a refinance with another mortgage lender who didn't mind that he lived abroad. It even got us a better interest rate as well. 

    Now, obviously this is a very different situation and different criteria will apply here in Europe compared to the USA. But what I just want to say is that it might benefit you to go to other financial institutions, explain your situation and see if they are willing to help you out. 

    1Reply
  • Dolev Zaharony
    OP
    Member since 2022 · 23 posts · 2 votes
    4y
    Quote from @Jonathan Mertens:

    @Dolev Zaharony I had it recently that my brother wanted to buy himself into one of our investment properties. Doing so, he would also be added to the mortgage (logically). After handing in all the necessary documents with the mortgage lender and the notary to get it finalized, the mortgage lender literally said 'No.' for the only reason that he lived in another country. We live in Europe and our investment properties are in the Netherlands. My brother literally lives 15 minutes away from the property, there's just the border with Belgium in between... 

    So, we simply ended up doing a refinance with another mortgage lender who didn't mind that he lived abroad. It even got us a better interest rate as well. 

    Now, obviously this is a very different situation and different criteria will apply here in Europe compared to the USA. But what I just want to say is that it might benefit you to go to other financial institutions, explain your situation and see if they are willing to help you out. 


     Thanks Jonathan, that's what I'm planning on doing but I feel that it will be the same with most of the banks. Still won't hurt to try!

    0Reply
  • Jon Fletcher
    Member since 2021 · 174 posts · 56 votes
    4y

    @Dolev Zaharony another bank will want your business and will be willing to work with you and your situation. Just explain everything upfront. Try smaller local banks and credit unions as they are typically more flexible. 

    0Reply
  • Dolev Zaharony
    OP
    Member since 2022 · 23 posts · 2 votes
    4y
    Quote from @Jon Fletcher:

    @Dolev Zaharony another bank will want your business and will be willing to work with you and your situation. Just explain everything upfront. Try smaller local banks and credit unions as they are typically more flexible. 


     Thanks. This one is actually a local credit union. I will try a couple other ones. 

    0Reply
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