Advice on HELOCS in Texas

8 Replies


I was recently denied a HELOC because one half of my two-unit is rented (I was shocked). The title of the house isn't under an LLC and my original loan is considered "owner-occupied". Any suggestions?

Also, I’m looking for a bank that offers fixed-rate HELOCS if you could recommend any. Thanks!

@Matthew Crivelli

I’ll eventually be offering up the second unit. I spoke with my lender about doing a cash out re-fi and he advised against it. He said that since it’ll be rented then the loan would be considered an investment loan and the rate would be higher. Road blocks I was not expecting!

@Bailey A. The lender was right in the fact the rate would be higher. But it would be a 30Y fixed so you would be paying principal from day one instead of interest only with a HELOC. Also if the tenants are paying the note and the property can cashflow even at the higher rate it makes just as much sense to do a cash- out over the HELOC. I doubt the rate would even be that much higher.

@Bailey A.

Texas is wonky and a lender's nightmare when it comes to cashing out and HELOCs. As a primary occupancy, you can only cash out 1-unit SFR in the state of Texas. Look up Texas 50(a)(6) if you want some more information, but basically, it prevents 2-4 unit cash-outs. Not allowed.

So at this point your only option is to sell or get an investment loan on it, both of which would require you to move out technically.

Investment rates are "that" bad especially compared to just 2-3 years ago. 

FYI most people answering that don't live in texas will not be able to answer your post correctly without knowing texas cash out rules... which also apply to HELOCs

@Bailey A. just to confirm here, @Nicholas Covington is 100% correct.  Our rules are so strange here that many outside of out state don't know them.  You cannot do a cash out loan on a 2-4 unit property if it is your primary home.  If you ever need a more "local" opinion on things then just post in the Texas forum.  it's the most active state forum here on Bigger Pockets.  That will limit the out of state comments for the most part.  Feel free to ask anything else if you need.  Sorry for the news on this but this is why Bigger Pockets is here - so you can get the right information.

@Andrew Postell

Thank you Andrew,

This is clearing up a lot of confusion. I see now why I recently got denied! I feel like I shot myself in the foot with that one lol the second unit is a converted garage done by the previous owner and not even technically recognized as a second unit by the bank. I’ll look into the Texas forum, thanks for the info.

@Bailey A. wait a minute.....your second unit is just an accessory unit?  Then that's totally fine.  That is NOT a reason for a denial here in Texas.  Something else must be going on?  Maybe not?  Also, single family homes can be purchased with as little at 15% down....but maybe we should talk more about your scenario?