Trying to get a HELOC

11 Replies

Hey BP members. I need some help trying to figure out how i'm going access my home equity while working for myself and starting up an LLC. A little back round on me, i purchased my first home back in 2012. I have a mortgage of 140k left and my home is tax assessed at 200k. The same year i also rolled over 50k of my pension into an IRA. In 2013 I purchased my first flip house for 18k and remodeled it while collecting unemployment. In december of 2013 I purchased my second flip home with my brother for 25k. In april 2014 my first flip home sold for 64k and now our second home is finished and on the market for 89k. Im going to apply for the HELOC but it doesn't sound promising without having "consistent income" the last 2 years. Im also a union electrician which leaves me the option to go back to work full time or do a 2 week short call. One of the requirements for the Heloc if i am employed is 2 paycheck stubs. Im wondering if they will look into my employment further than just those 2 pay stubs if i do do a 2 week short call. Any other ideas on how I could access a HELOC without having to go back to work full time, which would severely hold back my progress at building my own business and reaching the bigger goal which is of course becoming self sufficient. Any ideas or help would be greatly appreciated! Thanks fellow members!

hard money

It's called hard money because it's hard to find right? haha  I've looked into finding a hard money lender in my neck of the woods.  Found a couple but there numbers weren't adding for me to make it a smart financial move.

Hi Paul,

Great start on your real estate investing business and going full time investor! 

As far as I know, for the purpose of any kind of loan, the lenders rule is 2-2&2 meaning they require two recent paystubs, 2 W-2 Forms and 2 months of bank statements. So getting a full time job for a few weeks won't be sufficient. They will have a look at your last 2 years taxes and see what kind of income you have. Do a research on hard money and portfolio lenders  in your area and see what their requirements are. Talk with more lenders and ask what they can offer you depending on your financial situation.

Good luck!

Evelyn

Just to clarify, it is not called hard money because it is "hard to find" in fact, hard money lenders are a dime a dozen.

As to your issue, getting a job now full time will not be good enough to satisfy lender requirements for a HELOC or any other institutional money source. Build up a private money network by forming relationships with those with money but no time or relationships you already have (family, friends, associates, doctor, dentist, accountant, attorney, etc.

Hard money lenders are also an option for your short term flip deals. It appears you have some capital from your flips so with enough of your own skin in the game, you should qualify, no need for a 9-5 job with them. As you build more capital and more income, you can go after some cheaper institutional money. You can also use your borrowing provisions from a 401k.

I just closed on my first HELOC about 3 weeks ago for an investment property I own. I went through Wells Fargo. I've been employed full-time for the past 8+ years (the last 3 or so making a little over 80K). I also have a VA mortgage for my primary residence through them with about 140k remaining on a 165K loan. My credit score was in the 740-760 range when I applied. Initially they said they would loan up to 70% equity on my rental property (they also wanted a copy of the lease to verify its income-which I gave them) which has a value of between 70-75K.

However, once they conducted the appraisal of the property the appraiser came back with a value of 54K. I ordered a copy of the appraisal and noticed that the comps that were used were other foreclosures in sub-standard condition and also older sales and further away from my property than other available comps. Bottom line-they saw I was an investor and back pedaled reducing the appraised value of my property and then reducing their offered loan to 60%. In the end I decided to close on the HELOC anyways, but it was a good learning experience and the next time I do it (probably within the next 6 months on a foreclosure I just bought as a personal residence) I'll be sure to do a lot more shopping around.

I think your best bet is to look for a local portfolio lender as mentioned above and if you're not ready to pay the prevailing rates for that kind of money consider going back to work full-time for a few more years as you complete a few more deals and build up your track record with the intent to find private partners etc.

@Patrick Lindsey  I also suggest next time you try and meet the appraiser at the property and bring along your own comps to justify your opinion of the property value. I have had success with this technique in getting short sales approved. Many appraisers get assigned jobs in markets they are not familiar with and end up pulling sales straight out of public records which show little or nothing about the condition/situation of the sold properties. Many appraisers also appreciate this because you make their job easier, they don't need to dig around as much to find comparable sales. 

@Chris Kennedy  I met the appraiser at the property, walked her around and chatted while she did the appraisal-I thought I did a good job of building good rapport but I guess it didn't help. I hadn't thought of actually showing up with comps in hand-definitely going to try that the next time. Thanks!

Thanks for all the good info......I haven't had much luck finding hard money lenders.  Anywhere else I should be looking? The ones i did find where through my brokers contacts.

They'll usually average out your last 2 years payroll for self employed or commission people. No real need to go back to work if you're making income, get your bills down to nothing, then pay yourself a salary through an LLC. Won't happen overnight, but you'll be able to borrow from banks with good credit and up to their DTI based on two years average income, including your unemployment. That's pretty much what I'm doing. I use private money for flips, but want to start getting some more rentals, so am going for the cheap bank money down the road.

I was told by a couple banks that they don't count unemployment as income even though its taxed like income........

Get involved in a local REIA. Find out who is actively doing deals. Then find out what local lenders are working with investors. Stay away from the large banks. Focus on smallish, local, portfolio lenders. They will be more likely to look at the track record you've been building, consider the economics of the deal you're pursuing, and work with you based on what you have going, instead of focusing on the fact you don't have 2-years self-employment history. I would go that route, before pursuing Hard Money, because the rates will be better. Just remember, when you approach these guys, you're interviewing them. They make money lending money. That's how they can afford to pay interest on deposits (as sad as the rates are).