HELOC on Owner Finance??

Question

We have a property that is owner financed.  We own the house, original owner owns the note.  3.5% on 15 yr no MIP.  I would like to keep the existing loan and not refi.   I've reached out to a couple of banks about doing a HELOC and they don't seem to think its possible on an Owner finance.  Anyone have any experience here or can recommend a lender?

John Underwood · Answer

You own the house, the old owner is just the bank. If your attorney created the note correctly it shouldn't be an issue as long as you have enough equity. I'd ask the bank why or ask another bank.

Tom S. · Answer

@Trey Knight  if you default with a second mortgage, yes that 2nd place lender can initiate a foreclosure but the 1st lien holder gets paid first.  So it might not be worth their time.  For example the 1st = $100k and the 2nd = 25k and the house is worth $150k, after the foreclosure and fees the 1st would probably still get their $100k, but the 2nd may not get their full $25k.

I've done a lot of OF as a buyer and because you're personally guaranteeing it, I've seen language they can just sue you outright if you default.  In other words, for that $25k 2nd place mortgage, don't initiate a foreclosure and just sue to seek a judgment.

Trey Knight · Answer

I don't recall a restriction, but I can see why that would be problematic.  How does that work with a second mortgage? They can foreclose same as a first mortgage right?  Who gets what in the event of foreclosure?

Trey Knight · Answer

Yeah definitely a mistake.

Peter Tverdov · Answer

I would be impressed if you found that. It's hard enough getting a HELOC on investment property. Also curious if your current mortgage with the owner allows for it. Mine does not.

Chris Szepessy · Answer

Like others said, shouldn't be an issue. Just keep calling other banks/credit unions. Every bank has their own rules/guidelines to follow.

Tom S. · Answer

@Trey Knight  Gotcha.  This is posted in the Landlord and Rental forum so that's why I thought it was a rental property.

Trey Knight · Answer

We are currently living in it so no issues there.

Tom S. · Answer

@Trey Duling Agreed with John - shouldn't be an issue and keep calling around to other banks.  The hardest issue IMO is getting a HELOC in a rental property, not many banks do that.

HELOC on Owner Finance??

Most Popular Reply