WHAT! I DONT WANT TO DO ANYTHING ILLEGAL...

13 Replies

okay here's the story. I have everything in line finance rehab, people in the construction, I have somebody to project manga the rehab, I have somebody in wholesaling and I had a pretty good hard money guy lined up to help me with everything that I don't know because I don't know a lot. lol 

what I'm trying to get is the down payment to pay the heart money guy.

so I went to a credit union to try to get a HELOC turns out the lady at the credit union tells me that they can't give me a loan because this is considered a business.

That if they do give me a HELOC for this transaction, then that would be consitered illigal

another road block on my way to success ( nobody told me they would be so many of these when I started. Lol.

If anyone can give me any advice I would be very appreciative.

thank you in advance

Hi @Christian Alcaraz my guess is if you had just went in there to apply for a HELOC and not mentioned how you were going to use it, you would have been fine, because once they give you that line of credit it is yours to use however you wish.

So I do find it kind of odd, that she would mention that it would be illegal to use it for business stuff. Because I know plenty of people that have used theirs to put down payments on rental properties.

My brother is a mortgage broker, so I emailed him to make sure that my information is correct and once he gets back to me, I will let you know. But I am sure many others will chime in and help you out.

If what she says is true, I know many people operating illegally. One of my private lenders has a 250,000 equity line on his house that he funds some of his deals with as well as some of mine. The bank is fully aware of what he is using it for, and is ok with it. 

hello!  My brother got back to me & said no it wasn't illegal. That he's had many clients use their HELOCS for investment properties. So I would do a little more digging on why she said that & if they are still giving you the  run around I would move on to another bank. 

Try another bank! Good luck to you!

Christian,   I do not know of any restrictions on the use of the loan proceeds.  But, you may not be able to deduct the interest unless it is used on your home for capital improvements.  Although most people do take this deduction regardless of the tax regulations, to my knowledge, that is the requirement for a proper deduction of the interest.

You might like to find a compatible investor to put the deposit down and split the proceeds 50/50, if you do all the work.

wow. Thank you Nicole. And thank you for letting your brother know. Tell him I said thanks too. 

well then is it kosher for me to not say why I'm useing the HELOC and then use it for a different purpose?

This is a credit union. I dont know if that makes a difference. 

Thanks again to Dell, Stephan and Kent. I appreciate all your feedback.

Kent. When you say compatible investor, you just mean like a 50/50 partner?

@Christian Alcaraz  sure! Its your money. You are using the equity in your house for a line of credit. No different than a credit card. Not sure about credit union rules, but again find it odd that she would say that. I would just move forward to a different bank. 

Yea. That would be the key. You need to find out what their HELOC loan terms state. Do they require you to tell them what you will be using the money for? And once you do, are they enforcing the use of that money to be used for that purpose?

To me, that just doesn't add up though. If it were simply a home equity loan, that would make sense. But a HELOC, by its very nature is not meant to be used for a one-time event anyway. Its meant to be used for anything or even nothing. And then used for something else the next time and the something else the next time.

That being said, I had a local bank looking to give me a HELOC on some of the equity of my investment properties but they said that HELOC would be conditional on using the proceeds toward the purchase and rehab of more investment properties.

i.e.I would not be able to just use it on taking a vacation.

So that does suggest that some HELOCs can have restrictions on them......

The two issues you have now are:
1) They already know your intent so I wouldn't lie to them but you don't have to volunteer everything either.
2) They clearly don't have any common sense when they're suggesting that its against the law to use the proceeds of a HELOC to purchase real estate. It might be against their HELOC product guidelines/rules and may allow them to call the loan due. But there's no way its against the law to use HELOC proceeds as a down payment to buy property. That happens every day. Thats actually what I used to start investing myself. Banks will even consider a HELOC with an available amount of credit as proof of funds.....

I would go back in there and apply again. If they ask the use, just gloss over it and say you have some things you're looking at using it but nothing definite as of right now. Technically the truth and that should be all they need to know. If they ask for more details, then I'd say some home improvement type stuff. Again, technically the truth, you're just doing the home improvement on an investment property is all.

I used a HELOC from my credit union to fund my first rental purchase. On purpose of loan, I simply stated "home improvement". It's vague but honest. I did not state which home I was improving. They never asked for anything more than that and funded me in about 12 days.

Regarding the illegal part, my guess is that since it is a credit union, unless they have special designations, they are only allowed to offer consumer purpose loans.  Most credit unions are consumer purpose only, else they risk running afoul of their charter....or whatever the credit union's version of a charter is.

Regarding tax deductibility of interest expense on home equity loans, yes....for the typical consumer, it is only allowed if either part of the purchase of the property...like an 80/10/10 loan or to fund capital improvements.  That said, you are not the typical consumer.  As long as you can clearly show the IRS, if needed, that the heloc funds went towards the purchase of an income producing property, you will be fine.  In my case, I can show a loan funding within 30 days of a wire transfer for most of that amount going to a title company and income generation within another 90 days.  Just show that loan was to generate additional income and not purchase a ski boat or new car.

Never lie to a bank or any other type creditor (potential felony)....or preferably anyone for that matter.  That said, just tell them what they need to know.  Don't go in there offering your life story....no matter how exciting it is to you.

You need to discuss with your lender what regulations AZ put on second mortgages. There is probably some basis is their claim or they would not have madeit, so you need to fully understand what the limits and conditions are for a HELOC in your state.

thanks again @Nicole Pettis  

@Mike H. A lot of really eye opening tips. I really didn't submit the last step in the HELOC. and yeah I'm very sure it was a HELOC. But she kept saying that she cant legally tell me no, she could only tell me that they don't loan for business. but that it can be for vacation or home improvements. But if it were for a vacation for example, that they would need proof.

Me: So can I apply for a loan

Loan officer: Yeah definitely, but legally we don't loan for business purposes

Me: So... theirs no point in moving forward?

Loan officer: I cant legally say no or yes.

Me: So I'll just submit it.

Loan officer: O.K. I'll be happy to submit it to the underwriter but we don't do loans for business.

Me: so...

we went back and forth for like 1 hour and 30 min.

but ill definitely take your advice.

thanks

Sounds like she would be happy to loan you the money for home improvements if it was a hobby,but not a business. Maybe its a profitable hobby, instead of a business :-) and all is well?

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