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Wells Fargo denied my HELOC request.

glck23 448 66 August 23, 2015 at 04:05 PM
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Hello, I have an owner-occupied 4 unit apartment property that has $200,000 in equity (property was recently appraised when i refinanced to get rid of FHA). Wells Fargo won't give me an HELOC because of my debt-to-income ratio. The whole reasoning behind the HELOC is to consolidate debt, some of my credit cards have 25% interest Mad

I cannot use my rental property income because I did not report income to IRS in 2014 (income from units was used to fix up some of the units).

I will be reporting additional income from the apartments for next year taxes.

Should I even bother applying with other banks or creditors for a HELOC?

Thanks.

4 Comments

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#2
Different lending institutions will have different policies. You found a pretty standard debt to income (DTI) requirement. Most institutions will have something very similar along those lines. Yes, it is possible that another institution would have a different policy and maybe you could get a HELOC through them, however you just learned from Wells Fargo that even if someone did authorize a HELOC, your risk would be higher resulting in a higher interest rate.

Just having straight equity in a property isn't enough to satisfy most lending requirements. Your equity can disappear (housing crises proves this again and again). Your income is a good constant to also worth within.

You also mention that your goal of the HELOC was to offload the credit card debt onto the property. I don't agree with that approach -- many will argue straight numbers and say the interest on the HELOC is cheaper (and it certainly will be) but the fact that you have credit card debt that requires such a consideration only proves that you will likely not be absolved from the situation by offloading the debt. Credit card debt is mostly unsecured, and in this case I'm taking the liberty of assuming this is unsecured credit card debt. That being the case, most financial advisers would not appreciate or recommend the transition of unsecured debt to secured debt. In this case you would be risking your property that you will not continue to make credit mistakes.

This is mostly a pretty straight answer. You will likely want to make sure your ability to correct your debt is within your control. Wells Fargo probably gave you the DTI ratio and that gives you an amazing viewpoint of how leveraged your are.
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#3
Quote from eekthecat View Post :
Different lending institutions will have different policies. You found a pretty standard debt to income (DTI) requirement. Most institutions will have something very similar along those lines. Yes, it is possible that another institution would have a different policy and maybe you could get a HELOC through them, however you just learned from Wells Fargo that even if someone did authorize a HELOC, your risk would be higher resulting in a higher interest rate.

Just having straight equity in a property isn't enough to satisfy most lending requirements. Your equity can disappear (housing crises proves this again and again). Your income is a good constant to also worth within.

You also mention that your goal of the HELOC was to offload the credit card debt onto the property. I don't agree with that approach -- many will argue straight numbers and say the interest on the HELOC is cheaper (and it certainly will be) but the fact that you have credit card debt that requires such a consideration only proves that you will likely not be absolved from the situation by offloading the debt. Credit card debt is mostly unsecured, and in this case I'm taking the liberty of assuming this is unsecured credit card debt. That being the case, most financial advisers would not appreciate or recommend the transition of unsecured debt to secured debt. In this case you would be risking your property that you will not continue to make credit mistakes.

This is mostly a pretty straight answer. You will likely want to make sure your ability to correct your debt is within your control. Wells Fargo probably gave you the DTI ratio and that gives you an amazing viewpoint of how leveraged your are.
Thank you very much for taking the time, I'll stick to the original plan and just pay off my debt as much as possible and finish it off come tax return season.

Thanks.
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#4
Quote from glck23 View Post :
Hello, I have an owner-occupied 4 unit apartment property that has $200,000 in equity (property was recently appraised when i refinanced to get rid of FHA). Wells Fargo won't give me an HELOC because of my debt-to-income ratio. The whole reasoning behind the HELOC is to consolidate debt, some of my credit cards have 25% interest Mad

I cannot use my rental property income because I did not report income to IRS in 2014 (income from units was used to fix up some of the units).

I will be reporting additional income from the apartments for next year taxes.

Should I even bother applying with other banks or creditors for a HELOC?

Thanks.
Just because you used the income to fix it up doesn't mean you don't show it on your taxes. There's a spot on your schedule E exactly for that. You might have been able to use the income since you can add back in expenses that wouldn't occur on a regular basis (remodeling expenses.)

As far as trying at other institutions, they're probably going to be the same and hit you for the full payment and not use any income since you didn't show anything on your taxes. Sometimes you can pay off the credit card debt and avoid getting hit for the payments, but they may require that you close those accounts when you pay them off..
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#5
The secondary market requires DTI less than 50% so it is difficult to get around that one for mortgages. I don't think HELOCs go to secondary market but you're probably not going to have much luck with a DTI over 50% either way. That being said different banks underwrite differently. The bank I work for will often give credit for rental property income as long as there are leases in place and verifiable income. You will probably have more luck at a local bank or credit union than the big national banks. Good luck!
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