HELOC Rant
So I spent a big chuck of my time last week trying to get home equity line of credit on my 3 properties. Using the rules of thumb that primary is 80% and rental propertyies at 70-75%, I figure I could get over 100k line of credit. For those who are thinking about getting line of credit from conventional bank (like Wellsfargo), here are the things they told me.
Good things first
- They will bear the costs of closing. Meaning everything from application, appraisaland everything. Very nice.
- They can waive the maintenance fee which is usually 75/year. Very nice.
- The rates range from 4-6 percent (depending on the credit score). Amortize over 30 yrs and refi at 10 yrs. If you don’t refi, balloon at 10th yr.
Now the frustrating parts
- Primary at 80% of value minus balance. If your primary is valued at 400k and loan balance is 280k, you can apply for 400k*0.8-280k =40k line of credit. This is not that bad actually but the credit person on the phone told me that because I frankly told them I plan to use the line of credit to buy rental property. So when they process my application, they factor in mortgage that I will be responsible for from the new property. However, Wellsfargo credit analysis didn't factor in the extra revenue/income I could get from the new property. This omission of rental income blow through the require debt to income ratio and hence the primary HELOC was turned down.
- For the 2nd and 3rd property application, the 70-75% is actually 60%. So if my rental property is also worth 400k and loan balance is 280k, I can apply for 400k*0.6-280k= (-40k). That’s right, I can’t apply for anything because the equity/value of the home is not enough. Frustration.
- Say even if the calculation above shows that you have any amount left to apply for line of credit, it has to be above 20k for them to even consider your application. My guess is that since Wellfargo is paying for the closing costs and appraisal, they don’t want to deal with small line of credit.
So, I am back to square one and have to rely on personal saving, personal line of credit (also with Wellsfargo but that line is approved) and other creative financing approach to get more property. If anyone has good experience with other more investor-friendly banks who will at least add in additional rental income from the new property for any ratio calculation, I would love to give them a try. It is comical to me that Wellfargo is willing to give me a sizable personal line of credit backed by me and will not approve home equity line of credit backed also by me and physical house as collateral. Comical. Comical.