Taking out HELOC from our home when we are renting the MIL basement
Last year we took out a HELOC on our previous home around this same time. We then rented that out and purchased our current home. We used our HELOC to model the basement into a MIL and are renting it out. We wanted to take a HELOC or loan out on this house now with the appreciation and added value of the basement, but were told we can't do that because we are renting out the basement.
I've looked for rules and haven't seen that anymore. Am I missing something, or do we label it as HELOC on an investment property since it is our main residence, but are also renting?
Jordan,
You might want to consider doing a cash out refinance because a HELOC carries a lot of investor burdens. You are also going to have an almost impossible time taking out a HELOC on a rental property. HELOC rates are as high if not higher than 30 year fixed rates right now so it may be a better idea. Most people hesitate due to a low first mortgage rate but that is not a good enough reason to not use equity in your home.
Especially if you are buying more rentals creating more passive income and lastly refinance for a lower rate in a couple of years. When you calculate the blended rate between the low first rate and HELOC versus the 30 year refinance in most cases the refinance makes more sense.
If you live in this home but rent the basement there should not be an issue with the lender or bank. Unless you have a confused loan officer or lender with excessive overlays.
#1 Creative Real Estate Financing Contributor
- Lender
- Fort Worth, TX
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#1 Creative Real Estate Financing Contributor
- Lender
- Fort Worth, TX
@Jordan James Redford just because one lender said it...or even 5...doesn't mean they all will. I would recommend reaching out to some local real estate groups. There are some that will post on the Bigger Pockets market place but you'll find tons of them on Facebook. Just search things like "Utah Real Estate Investor Group" or something like that. Some of those groups have tens of thousands of members. You should have plenty of references to go off of there. I would also suggest to start networking with some in your area as well. Many of them will meet in person and you never know who would will meet or learn at these groups. Meetup.com is a great place for those as well.
Hope all of that makes sense. Thanks!
I agree with @Andrew Postell on this one. If your lender told you no, ask a different one. They’re not all created equal.
#2 Managing Your Property Contributor
How is the lender going to know you are renting out the basement?
As long as you have the proper liability insurance, the rental income should NOT affect your HELOC application.
You telling them, probably caused an inexperienced loan processor to freak out and mislabel your home.
#1 Mobile Home Park Investing Contributor
- Investor
- Provo, UT
Call every credit union in your state and find one that will lend on it.
You could also ask the lender what the actual underwriting guideline says, it wouldn't be the first time they were wrong...
@Jordan James Redford
I have heard of a couple credit unions treating it as an investment property as far as the interest rate/ terms of loan if you are renting part of it. If you need the income to qualify from the basement apartment, include it. Otherwise I wouldn't specify that one way or another. It's just getting an appraisal on your home and increasing the HELOC. I have found personally that American first and University Credit union have been the easiest for me on HELOCS personally.
