Why use a local bank for a heloc?

8 Replies

Im getting started investing in rentals. My wife and i plan to take out a heloc on our home that is completely paid off. We are planning on using the heloc money to build an appartment in oir basement and have a rental income there. Then also put a down payment on one or more rental properties that we can quickly rehab and generate rental income from. We are talking to banks now.

My question is what are the benefits of a local bank or credit union to a large bank like Bank or C.U. like of America or Navy Federal? Arent all banks rates based on "Prime"?

Also. Another question. is it ok to buy my first rental out of in a better market over 8 hrs away? Thank you.

@Amedeo Conta , local banks and CUs will probably have more flexibility to work with you on deals. Large banks pretty much only do "confoming" mortgages, which they sell to Fannie / Freddie.

Not all banks are based on "Prime." They determine their rates based on a number of factors. This is especially true for portfolio lenders and CUs who have different business models than the big banks.

I think it's fine to invest in a market 8 hours away, as long as you:

  1. Have trusted boots on the ground
  2. Have done the research and know why you're investing there
  3. Are willing to do the extra travel when it's time to inspect properties, etc.

@Amedeo Conta ,

Independent mortgage brokers very rarely do stand-alone HELOCs (80/10/10 = example of not stand-alone), so yup it's local/regional depository institution (bank or CU), or big national box brand of same. Since there's no HELOC brokers, you basically have to dial for dollars yourself to find the best deal.

Regionals will have more flexibility, f. ex. there's a regional bank near me doing stated income no appraisal $100k HELOCs for properties in Alameda and Marin counties. 

Big box national will usually have the better rates/terms/etc for 100% vanilla cookie cutter full doc type scenarios, higher standards to get them all around.

Sometimes a regional will have a full doc 100% vanilla HELOC that's where the big nationals are for rate/terms, and of course just as hard to actually get, you just have to call and ask.

I field these phone calls and refer them out to who I think will be the best fit, but it's not like the Fannie stuff where I can be super accurate b/c I have a search engine showing a zillion banks and their exact rates/fees, it's more like "oh xyz type scenario, regional bank abc is usually really good."

Originally posted by @Amedeo Conta :

@Chris Mason thanks so much for the reply.

What do you mean by "cookie cutter vanilla full doc"?

i own my home outright and its tax

assessed at 300k so wont i get approved for basically any loan that i apply for?

 "Cookie cutter" = no flexibility needed, you've been on the same job a few years, have good credit, house will appraise (it isn't mid reno or anything), nothing wonky or crazy. 

@Amedeo Conta   - A short example

I went to several banks to get qualified for a 4 plex, but was denied by all of them because my self employment history was 1y5m.  My tax return was great the year prior, but the year before it was not very good.  I was denied because it didn't fit exactly into the criteria that the secondary market buys into.

I went to a small, local, portfolio bank, and was approved.  I was approved because they're keeping the loan (not selling to the secondary market) and the VP trusted me and what I was doing.  Most banks don't have this power.  The only ones that do, are the smaller credit unions, who write loans that they do not sell.