How to get a bank to grant a HELOC when you have no W2 income

7 Replies

I have a rather interesting situation that I'm not exactly sure how to handle. So my parents are getting close to retirement and would like to make a few investments to help solidify their retirement future. Now the interesting part. My parents have both been heavily involved in building and maintaining non profit organizations to benefit others. They are amazing with the ability to live very comfortably on very little annual W2 income. In fact they make almost nothing on paper and have almost no cash reserves. But they have NO debt other than a very small amount left on their mortgage. My father would like to use the equity in their primary residence to invest in some other properties but when he has talked to several lending institutions they are unwilling to work with him when they hear that he has almost no W2 income (he does get social security). Even though he has over 800 on his credit score and over 100K in equity in his house. Are there lenders out there that will open a HELOC for them based only on the equity in their home and the fact that they have amazing credit and no debt? They have always helped others and never asked for anything in return. I would really like to put them in a position to live comfortably through their golden years. Thank you for your input in advance!

@Jacob Tracy

That sounds like a hard situation for your parents. They sound like good people who have always done right by others. 

It's hard to say without knowing the numbers (W2/SSI). Sometimes we can "gross up" SSI depending on how taxes were filed. Did the bank look at tax returns? Did the bank say why they would not grant a HELOC? Also, did they speak with a local bank or a large bank? Would you be willing to co-sign with your parents if needed?

Originally posted by @Jacob Tracy :

I have a rather interesting situation that I'm not exactly sure how to handle. So my parents are getting close to retirement and would like to make a few investments to help solidify their retirement future. Now the interesting part. My parents have both been heavily involved in building and maintaining non profit organizations to benefit others. They are amazing with the ability to live very comfortably on very little annual W2 income. In fact they make almost nothing on paper and have almost no cash reserves. But they have NO debt other than a very small amount left on their mortgage. My father would like to use the equity in their primary residence to invest in some other properties but when he has talked to several lending institutions they are unwilling to work with him when they hear that he has almost no W2 income (he does get social security). Even though he has over 800 on his credit score and over 100K in equity in his house. Are there lenders out there that will open a HELOC for them based only on the equity in their home and the fact that they have amazing credit and no debt? They have always helped others and never asked for anything in return. I would really like to put them in a position to live comfortably through their golden years. Thank you for your input in advance!

 Tell your folks we appreciate their hard work and dedication to making this a better world. 

Also, have them check out a local Credit Union, they are far more likely to work with them.

Thank you for the kind words. They did sit down with a local community bank but have not tried a credit union yet. I will have them attempt that route. I suppose that its possible for me to co-sign for them if it came to that. I hadn't really thought about that. It's not to often that a parent would need a co-signer that was their child. Might work though.

I've got a HELOC without any income qualification just on the basis of appraisal.....but my house was free and clear and the HELOC is a first lien position.

Also, I've got less than 50% of the appraisal on that LOC.

That was 4 years ago with Citizens Bank....not sure if they still do it - when I referred my client a year later, they said they disconnect this product. But it won't hurt to ask

@Lisa Sluss a post from 1 year ago!  Awesome.  This is exactly what Bigger Pockets is designed to do - allow people to research topics from any time but there were some important mentions above for this scenario:

  • Might be difficult to know for sure without knowing OTHER details - what are the debts they have?  How MUCH is the W2 income and so forth.  The original post here does not provide us with enough information to provide a "concrete" recommendation...but we can still make suggestions
  • Local/Smaller Lenders - Larger banking institutions are just no good for people in this situation.  Social Security is a GREAT income source....think about it - they will NEVER be fired!  It's a great source of income and in many cases a lender can even "gross up" the income to help them qualify better.  But larger banks may not do this.  Stick with local/community lenders for a higher chance of success
  • $$$ vs. %%% - now, $100k in equity sounds impressive, right? But if this represents 10% equity you will not likely find any lender willing to write a HELOC. But if this represents 50% equity, that increases your odds. Again, not quite enough information above to know for sure but that's the guidance I can offer based on what was given.
  • "Setup" through retirement - Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. With rates moving higher, it is likely that your rate will increase in the future. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC for 10 years it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when is matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate. If anyone is on a "fixed income" - meaning social security - they should under NO circumstances be in a variable rate mortgage.  I've seen it happen numerous times - gas prices go up, food prices go up, but their income doesn't go up - if their mortgage rate went up it could absolutely crush them.  And I've seen it happen.  NO VARIABLE INTEREST RATES FOR SOMEONE ON FIXED INCOME.  If you don't have a plan to pay back a HELOC quickly, then you are putting yourself at risk when the rate adjusts.

Anyway, I hope that some of this helps but feel free to ask anything additional.  Thanks!

Thank you so much for your reply. Long story, short: I have $750,000 in equity, free and clear - no liens/mortgages. I can't find a lender who will work with me, because my 1040s aren't very impressive. I live off rental income. It seems like this would be a win-win situation. I would be the only risk taker in this scenario. The lender would be the first lien holder. I'm still searching...not interested in hard money lenders. Looking like I will have to sell a rental instead of taking out a HELOC.

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