Why You Should Shop for the Best Rates (HELOC story)

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I am closing on a HELOC for the condo I purchased in 2016. The HELOC would serve as my reserves for a 4plex I'm in the process of purchasing. I am a little time crunched on needing the funds since I can't close on the 4plex without them.

I walked into Wells Fargo and the lady said they offer up to 85% LTV and the rates begin at about 7.25%. Given that I would receive a credit of .25% for being a current customer and for establishing autopay from the start, I anticipated anywhere from 7-7.5% interest rate after the underwriting process. I was ecstatic. These were the exact terms I was hoping for.

The lady who would be handling my application called me the following day notifying me that they offer a max of 80% LTV and that my rate would be 9.25%. Thanks for the bait and switch Wells Fargo. Since I was in a time crunch, I didn't have the leverage to tell them no thanks and go elsewhere. I was slightly frustrated though.

A few days later, they appraised my property for $155k. But they said the underwriter will allow a counter offer if you can provide reason to believe your property is worth more via comps, recent sales, and links to these sales from Zillow and/or Redfin.

I felt optimistic since my real estate agent buddy sent over comps showing that my property should appraise for at least $165k, since very recent sales of $170k, $175k, and $180k would indicate $155k was way too low.  I even included links to very recent sales on Redfin of the properties.

After crafting one of the best emails I’ve ever sent, the underwriter basically ignored them as the result was the same: Wells Fargo still believed my property was only worth $155k even though the numbers indicate otherwise.

Fuming, I decided to call Clark County Credit Union. The lady said they only go to 75% LTV, but the computer appraisal had my property at $171k.

I couldn’t imagine something being 1000x better than my experience with Wells Fargo, but CCCU did. The lady then sent an email stating that my interest rate would be 5%.

Today I am closing with these terms: $35k HELOC at 5% interest rate as opposed to Wells Fargo's best offer of $30k HELOC at 9.25% interest.

Thankfully I was able to talk to the property owner to push the closing date back a few weeks so I could get my HELOC closed.

I couldn’t be more thankful for my local credit union. 

In the process, I learned that any credit pulls within a 30 day period only count as one hit on your report. Because of this, I see no reason to not shop around as much as possible when dealing with any lenders.  The difference could be pretty drastic.

Please comment below if you’ve shared a similar experience with a big bank. 

Yup, HELOCs vary drastically by lender. It's not like the Fannie 30YF stuff where you will mentally exhaust yourself for only 0.25% to rate... HELOCs are all in-house portfolio money being lent, so drastic variances. That 4% spread between highest and lowest is not at all atypical (4% above market would actually be quite illegal for a 1st position QM Fannie loan). Don't assume it'll always be the credit unions that come out on top, they switch back and forth depending on which depository institution needs to beef up their "assets" column in a given month or quarter.... next month it'll be the local banks that come out on top, and then in six months the big box banks, and a year from now the credit unions will be back on top, etc.

If someone only has the energy to aggressively shop for half of their mortgages, the HELOC half will be the best bang for your buck hands down. Only in the hard money world, and credit card world, are the spreads so high.

Smaller credit union and banks seem more likely to have better rate on HELOC in my experience. Back in 2013/2014, I was able to get prime rate (at that time was 3%) minus 0.25% from First Merit Bank (now merged with Huntington bank), so the floating rate at that time was just 2.75%; really missing those rates now. But your 5% from the local credit union is pretty decent in today's environment. What I normally do is to search for a few banks offering HELOC in my area, call at least 3 banks (big bank, small bank, credit union) to compare the rate as well as the terms/fees.

2.75% is great because you're basically guaranteed to make money on what I like to call Real Estate Arbitrage.  You borrow at 2.75% and turn around and make 6-10% on a rental property and keep the difference.  I'm very thankful for 5% given the current rates.

I found a lender that will do a HELOC at 100% CLTV. For that, I don't care what the interest rate is.

I should clarify though, my 100% HELOC bank was for a primary residence (not investment property)