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Hi, I have an investment property that's paid with cash. And i am looking to take out a home equity loan (not line of credit) on it. Assume it's <80% of the appraised value, can any pro clarify how the approval process works? Do the lenders care about your debt to income ratio, bank statements, etc.. I heard it's much easier to get approved for home equity loan than a mortgage. Does anyone know the exact requirement list to get a home equity loan approved?
Lenders definitely care abou your debt to income ratio. Since this is an investment property, assets also carry some weight. To be approved, your debt to income ratio should be under 45%, but could go a little higher.
Be prepared for the same (or even more) criteria required than when obtaining a mortgage loan for purchase. Obtaining any kind of investor cash out loan, home equity or standard first trust, is a red flag. Some lenders see this transaction as a signal of financial trouble when someone does a cash out on an investment property.
Never pay cash for a property with the idea of obtaining financing after you close. It may not be there. Investor financing was one of the first programs to receive a significant overhaul in the mortgage crisis. Current cash-out on an investment property for Fannie is 75%, but many banks no longer permit it. Credit requirements are high, as are cash reserves.
Home equity loans are a portfolio product and vary from bank to bank. Again, many banks stopped doing investment HELOCs. There are not any standard guidelines for this product, but I can tell you credit, qualifying and reserves will need to be above average. You will have to contact each individual bank.
thanks i was under the impression home equity loan was easier to approve guess that's not the case.
had to pay cash as the bank wants the deal closed (shortsale) within 4 weeks.
So there is really no difference in term of approval for mortgage vs home equity loans? So what is the point of home equity loans since mortgage has lower rates.
Lower costs are not the only reason. On a home equity, you pay like a credit card, if there's no balance, no payment. The Home Equity is a credit line. You can write a check against it as needed. Most home equity loans have an interest only or an introductory rate, which can make the payment very attractive.......much like we saw in the mortgage meltdown.
Right now, I'm willing to bet a HELOC will be harder to get than a regular first trust. 4 weeks is plenty of time to get a loan through - I'm still taking loan apps to close at the end of this month. Your seller didn't want an appraisal. Check that property over well.
If a bank feels a residential home may not have enough equity, can they use vacant, uninhabited land as additional collateral?
This would have applied to a hm equity loan in 2011.
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