Hi BP'ers, I'm in a bit of a pickle and need some advice/ideas.
I've been looking at buying a rental with a 15% down 30-year loan based on owner-occupancy. After several real dogs, I found a deal that I really, really like. Seller is trying very hard to refi her balloon loan due on 12/31. She doesn't have much W2 income and has been turned down once already. She is trying one last time, and should hear in the next few days. If she doesn't get a loan, she promised she would sell to me. The numbers on the deal are very good, and it is also a property I would feel fine living in for a year.
Anyway, my plan all along has been to take out a HELOC on my house and use that for the down payment. Anybody see the problem with that ? I certainly did not, and neither did the mortgage lender who pre-qualified me.
After closing on the HELOC this week, I was reading through the docs last night and stumbled upon the Occupancy clause :
"Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy, unless Lender otherwise agrees in writing, which consent shall not be unreasonably withheld, or unless extenuating circumstances exist which are beyond Borrower's control"
So I'm not sure what to do. If I don't owner-occupy the rental, I will have to max out the HELOC and then some to come up with 25% down, and even then not sure if I could come up with the needed reserves. I'm looking into that route, but don't like it.
But I would like advice on the following. Would it be reasonable to approach the HELOC lender and ask them if they would consent to me renting out my house for one year while I live in the rental (as per the boldface above) ? The truth is that my current house is where I plan to live for at least the next 8 years; living in the rental would only be a one-year gig to qualify for the 15% down mortgage.
In discussions with my mortgage lender I was very up front about this and she totally understood. Do you think the HELOC lender (bank) would also be understanding ?
Related question. When I went to close on the HELOC at the local bank branch, the person I signed papers with was the branch manager. He was a nice guy, and gave me a soft-sell of all the benefits of having a personal relationship with a full-service bank (currently I bank at a credit union). I would feel very comfortable approaching him regarding the Occupancy clause exception, but I don't know if he has the power to make it happen. Furthermore, he won't be at work for all of next week.
The only other option I know of is to dial a 1-800 number for the bank. And they have absolutely horrible customer service! Nobody picks up the phone - you just leave a message and someone calls you back several hours later. And every single time I spoke to anyone during the HELOC application process, I got differing, inconsistent answers and had to explain to them the answers the previous employee had given me. So I shudder to wade into that mess unless I have to.
Anyway, I'm feeling pretty anxious about this. The seller is very likely to find out in the next few days about her loan request. Just yesterday (before discovering this mess) I assured her that I felt confident I could close the deal with her if she didn't get the loan. We have a very good, open rapport and I want to continue to be as honest and straightforward with her as she has been with me.
So, let's hear it.
1) Any chance the HELOC bank might grant me an exception ?
2) Is waiting a week and contacting the friendly branch manager the appropriate thing to do, or do I run the 1-800 gauntlet ?
3) Any words of encouragement/discouragement based on real-world experience ?
4) Is there some obvious alternative that I am missing ?
#1. No. That's as far as I got. You know the lending rules and there is some risk in violating them. That's your call.