Are HELOC based off Tax Accessed Value?

Question

I am working with a bank on a construction loan for a duplex. I need between $20-25k to put up as a bond for the utilities (long story but the city has required it).  My problem is that I need this money so the city can finish the short plat. Then I cant get that back out of the construction loan in the first draw but the loan cant be approved until short plat is approved and I cant get the short plat approved until the bond is up (nice catch 22). So I have to come up with the cash, on top of the DP for the loan, and was going to do a HELOC on my current rental property to come up with that cash for the short term.

From my understand of HELOC it was all off the equity that is in a said property and you find out what equity you have by doing an appraisal to find what the market value would be. Then take a X% LTV on the equity in the property. I went to the bank I'm doing my construction loan with and they told me something completely different. For a rental property they take 60% LTV of the TAX ACCESSED VALUE of the property minus the remain loan amount. So for my rental it would require the value to be over $400,000!!! ($400,000 x 60% LTV = $240,000 - $215,000 (remaining loan) = $25,000 HELOC amount) The TAV of my rental is only $155,000 when I bought it for $235,000 2.5 years ago.

This is so ass backwards from everything I've read I'm starting to wonder if I have miss understood HELOC this entire time?! So have I sorely misunderstood HELOC or is this really as far out there as I'm seeing it?

Erik W. · Answer

@Nik Moushon, hi there.  You've heard the gold rule, "He who has the gold makes the rules" right?  Or as the Bible says, "The borrower is a slave to the lender."  These two are in agreement: when you're borrowing money, the lender can do whatever they want.  You have to decide if you want to accept their terms or not.

In my town, a HELOC is usually based on an appraisal that is done by a 3rd party, not a county assessor.  For example, when I started investing back in 2005, we took out a HELOC on our personal residence, which the appraiser said was worth $X and we could go up to 80% LTV.  For a rental, I think it was 70% LTV.  Tax assessed value was never considered.  But each lender makes their own rules.

My advice is ask around and see if you can find a different lender.  Worst case, hard money may be an (expensive, short term) option.

Nik Moushon · Answer

I've actually found the opposite of that to be true. The three local banks/CU that I have called dont do HELOC on rentals. I'm waiting to hear back from the last two that are local and havent tried WF or BofA yet. Hard/Private money might be my only option for this.

Erik W. · Answer

@Nik Moushon, have you tried a local community bank or credit union?  The "big boys" like B of A and Wells Fargo are more oriented towards your typical consumer who wants credit cards, car loans, and a personal home mortgage (and maybe a 2nd for a lake house).  Community banks that portfolio loans in house are typically much more flexible and eager to get business from investors.

Nik Moushon · Answer

Thank you. I do realize the lender sets the rules, thats a given. I just have never heard of any lender going off TAV.

I have already been reaching out to several other lenders. I'm actually kind of surprised to find out that a good chunk dont even do them for rental properties.

Nik Moushon · Answer

Anyone?