advice needed RE: Heloc with too low of appraisal

Private Lending & Conventional Mortgage Advice
8yFollow

advice needed RE: Heloc with too low of appraisal

Stacy C.
Chesterland, OH · Member since 2016 · 9 posts · 2 votes

Hello, new investor looking to get into properties asap. Have enough cash for my first one, so a line of credit is not critical to me moving forward. However I was really dead set on using a HELOC just so that I do not tie up all of the $ I do have in my first property, I would be more comfortable having my cash available in case I need it for my own home, repairs, or other deals that might come up.

I've only applied one place so far and the problem is that the appraisal came back very low. I haven't owned the house 12 months yet, so some banks will ONLY use the last purchase price of my home, which was $225k. However upon purchasing the property I did a lot of work inside and out, and believe FMV should be around $275k or more.

The bank did just a drive by appraisal, after discussion they said in my area where its more rural / less comps to pull, most of that number will come from the last purchase price. I have the option to pay for a full apprisal if I'd like but I don't want to waste that $, the bank really talked me out of it, saying that I would have had to put 200k into my house to see that much change on the appraisal.

It appraised at 237k when I purchased it. I owe 200k on it. So at a 226k value, I do not have enough equity to get cash from a HELOC. At 275 or maybe hopefully a little more, the numbers would work to get me 40k or so which is all I really want anyhow.

What are my options? Try more banks? Dont want to keep running credit for nothing. ANother idea is just to pay cash, use delayed financing and get a loan on the house. I'm just not sure at the moment whether the first house will be a flip or a rental, I'm really looking for both. A rental I wouldn't mind a conventional mortgage but a flip I'd rather use a line of credit. Another would be to skip both and hopefully find a deal that will allow me to do a cash out refi to roll that into property #2, but I've heard that's not so easy on a new purchase.

Just looking for anything I may have missed, I surely can't be the first person to try to get a heloc on a house that came back w/ a low appraisal that they know is worth much more!

Thank you in advance.

1Reply
15 views

Most Popular Reply

Steve Wilmers
Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
8y

Hi @Stacy C.-

I was in a familiar situation a little over a year ago.  I ended up going with the appraisal, cost between $300-$400, which gave the higher appraised value that I was expecting.  

My house is located in more of an urban area, so there were multiple comparable sales, and I was tracking the comparable sales myself using sites such as Zillow to estimate an appraised value of my house.  

If I were you, I'd wait until I found some comparable sales in the area myself before hiring out the appraisal.  In addition, see if the bank will use the same appraiser as the one that originally appraised the property.  They will be the only one (outside of you) that will be able to recognize the before/after difference in appearance of the property.

1Reply
See this reply in the discussion

6 Replies

Jump to latestLatest
  • Steve Wilmers
    Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
    8y

    Hi @Stacy C.-

    I was in a familiar situation a little over a year ago.  I ended up going with the appraisal, cost between $300-$400, which gave the higher appraised value that I was expecting.  

    My house is located in more of an urban area, so there were multiple comparable sales, and I was tracking the comparable sales myself using sites such as Zillow to estimate an appraised value of my house.  

    If I were you, I'd wait until I found some comparable sales in the area myself before hiring out the appraisal.  In addition, see if the bank will use the same appraiser as the one that originally appraised the property.  They will be the only one (outside of you) that will be able to recognize the before/after difference in appearance of the property.

    1Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    8y

    @Stacy C.

    I too was in the same boat as @Steve Wilmers. My credit union tried to tell me it was worth as much as as the last real estate boom using an automated system. I paid for a full appraisal and sure enough I was right. It came back $55K higher. The other thing you want to do is make sure that a bank will appraise it for what its worth and not the purchase price as I'm sure you've already found that out. 

    All the best to you...

    Jorge

    1Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    8y

    @Stacy C.

    Listen to the BiggerPockets podcast #3. They interview an appraiser and he has some good tips.

    0Reply
  • Stacy C.
    OP
    Chesterland, OH · Member since 2016 · 9 posts · 2 votes
    8y

    @Account Closed thanks for the reply. Regarding the podcast - are you sure its #3, as in 003 from a few years back? I've started listening to it, more than half way through and no mention of an appraiser yet... thinking I've not found the right episode.

    If you have a link by chance that'd be great. 

    Thanks!!!

    1Reply
  • Chris MasonPro Member
    Moderator
    Lender · CA · Member since 2015 · 9k+ posts · 10k+ votes
    8y
    Originally posted by @Stacy C.:

    Hello, new investor looking to get into properties asap. Have enough cash for my first one, so a line of credit is not critical to me moving forward. However I was really dead set on using a HELOC just so that I do not tie up all of the $ I do have in my first property, I would be more comfortable having my cash available in case I need it for my own home, repairs, or other deals that might come up.

    I've only applied one place so far and the problem is that the appraisal came back very low. I haven't owned the house 12 months yet, so some banks will ONLY use the last purchase price of my home, which was $225k. However upon purchasing the property I did a lot of work inside and out, and believe FMV should be around $275k or more.

    The bank did just a drive by appraisal, after discussion they said in my area where its more rural / less comps to pull, most of that number will come from the last purchase price. I have the option to pay for a full apprisal if I'd like but I don't want to waste that $, the bank really talked me out of it, saying that I would have had to put 200k into my house to see that much change on the appraisal.

    It appraised at 237k when I purchased it. I owe 200k on it. So at a 226k value, I do not have enough equity to get cash from a HELOC. At 275 or maybe hopefully a little more, the numbers would work to get me 40k or so which is all I really want anyhow.

    What are my options? Try more banks? Dont want to keep running credit for nothing. ANother idea is just to pay cash, use delayed financing and get a loan on the house. I'm just not sure at the moment whether the first house will be a flip or a rental, I'm really looking for both. A rental I wouldn't mind a conventional mortgage but a flip I'd rather use a line of credit. Another would be to skip both and hopefully find a deal that will allow me to do a cash out refi to roll that into property #2, but I've heard that's not so easy on a new purchase.

    Just looking for anything I may have missed, I surely can't be the first person to try to get a heloc on a house that came back w/ a low appraisal that they know is worth much more!

    Thank you in advance.

     Hi Stacy,

    Like @Account Closed indicates, often a full appraisal will come in higher if you've made improvements to the interior of the house, which a drive-by appraisal obviously can't include because they don't see it.

    Each HELOC lender has their own guidelines and criteria, there's no Fannie/Freddie nudging everyone towards a similar standard. When calling around, they should be able to go over seasoning/appraisal/etc requirements without running your credit or charging you an appraisal fee. If you need to, be crystal clear that you're asking all of this because you don't want to waste their time (really, you don't want them to waste your time, but it's sort of the same thing).

    1Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    8y

    @Stacy C.

    My bad. It’s episode 7. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free