840 credit score Million dollar farm.. low income cannot get Heloc?

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cpumechanic
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840 credit score Million dollar farm.. low income cannot get Heloc?

Post by cpumechanic » Fri Dec 08, 2017 3:55 pm

Friend of family (no computer skills) has high credit score, million dollar property (farm) and a very small remaining mortgage that is coming due in a few months.

Income is ~50K per year from buying selling antiques..

His feedback is no bank will allow him a HELOC (Home equity line of credit).. to pay off a 60K balloon payment coming due when current mortgage expires.

Multiple Bank feedback is his income is "too low" to qualify.

I am no banker.. but I thought as long as you had assets free and clear (he does) and a good long credit history (he does Score > 800).. getting a Heloc to pay off the $60K balloon should be easy.'

He is cranky and frustrated , and reports multiple local banks credit unions refuse to loan him this small amount .

Can the experts here comment provide feedback? I told him I would post this and report back.

To summarize:

If you own a million dollar farm,(nearly free and clear) and have a small mortgage coming due with a $60K balloon payment, and only have $50K to $60K income.. no bank will loan you money ( or allow a Heloc).

I find this very odd.

Regards.... and thank you for feedback.. (I am nerd engineer, no banker).

CPU
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munemaker
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by munemaker » Fri Dec 08, 2017 4:03 pm

cpumechanic wrote:
Fri Dec 08, 2017 3:55 pm
Friend of family (no computer skills) has high credit score, million dollar property (farm) and a very small remaining mortgage that is coming due in a few months.

Income is ~50K per year from buying selling antiques..

His feedback is no bank will allow him a HELOC (Home equity line of credit).. to pay off a 60K balloon payment coming due when current mortgage expires.

Multiple Bank feedback is his income is "too low" to qualify.

I am no banker.. but I thought as long as you had assets free and clear (he does) and a good long credit history (he does Score > 800).. getting a Heloc to pay off the $60K balloon should be easy.'

He is cranky and frustrated , and reports multiple local banks credit unions refuse to loan him this small amount .

Can the experts here comment provide feedback? I told him I would post this and report back.

To summarize:

If you own a million dollar farm,(nearly free and clear) and have a small mortgage coming due with a $60K balloon payment, and only have $50K to $60K income.. no bank will loan you money ( or allow a Heloc).

I find this very odd.

Regards.... and thank you for feedback.. (I am nerd engineer, no banker).

CPU
No expert on loans, but if you just think about it...Take the $50 to $60K of income and subtract whatever living expenses would be, and then subtract whatever costs are involved in sustaining the farm (property tax would be one), then where is the money going to come from to service the debt? If I were the lender, that would be my concern. Sure, the lender can repossess the farm, but he really does not want a farm.

ResearchMed
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by ResearchMed » Fri Dec 08, 2017 4:07 pm

cpumechanic wrote:
Fri Dec 08, 2017 3:55 pm
Friend of family (no computer skills) has high credit score, million dollar property (farm) and a very small remaining mortgage that is coming due in a few months.

Income is ~50K per year from buying selling antiques..

His feedback is no bank will allow him a HELOC (Home equity line of credit).. to pay off a 60K balloon payment coming due when current mortgage expires.

Multiple Bank feedback is his income is "too low" to qualify.

I am no banker.. but I thought as long as you had assets free and clear (he does) and a good long credit history (he does Score > 800).. getting a Heloc to pay off the $60K balloon should be easy.'

He is cranky and frustrated , and reports multiple local banks credit unions refuse to loan him this small amount .

Can the experts here comment provide feedback? I told him I would post this and report back.

To summarize:

If you own a million dollar farm,(nearly free and clear) and have a small mortgage coming due with a $60K balloon payment, and only have $50K to $60K income.. no bank will loan you money ( or allow a Heloc).

I find this very odd.

Regards.... and thank you for feedback.. (I am nerd engineer, no banker).

CPU
I think what you are confusing, and understandably, is free and clear assets like mutual fund shares, vs. a farm in its entirety.
IF there was a default on the loan, the bank would need to go to extraordinary lengths and costs to sell the farm, or apportion part off and then sell that, and only then take their share.

He might be able to get a new mortgage, or refi the current one, to spread it out over many more years, with monthly payments that could 'work' with his income.
Is he sure he can't find a bank that would give him a new mortgage? HELOC's are often for shorter time periods, meaning higher monthly payments for any given loan amount, so that might be the problem.

RM
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cpumechanic
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by cpumechanic » Fri Dec 08, 2017 4:11 pm

To clarify:

He has discussed new mortgage options and feedback from banks is the same.. your income is too low, regardless of value of property.

Again... I find this odd.. if his credit score was suspect, or he had multiple bankruptcies.. I might understand.

But.. his credit history is excellent.. that doesn't matter?

CPU
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ResearchMed
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by ResearchMed » Fri Dec 08, 2017 4:18 pm

cpumechanic wrote:
Fri Dec 08, 2017 4:11 pm
To clarify:

He has discussed new mortgage options and feedback from banks is the same.. your income is too low, regardless of value of property.

Again... I find this odd.. if his credit score was suspect, or he had multiple bankruptcies.. I might understand.

But.. his credit history is excellent.. that doesn't matter?

CPU
What you seem to be overlooking is that the lender wants to see enough "free cash flow" every month, such that there is a very high probability that the borrower will be able to make payments, even if there are some extra monthly expenses (car purchase, medical costs, even a vacation, etc.).

I take it that he qualified for the original mortgage while he was working elsewhere, earning more?
This is a reason why some people reasonably fret about any possible need to take out a new mortgage *after* they retire, and don't have that same good income stream from work.

RM
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flamesabers
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by flamesabers » Fri Dec 08, 2017 4:28 pm

cpumechanic wrote:
Fri Dec 08, 2017 4:11 pm
To clarify:

He has discussed new mortgage options and feedback from banks is the same.. your income is too low, regardless of value of property.

Again... I find this odd.. if his credit score was suspect, or he had multiple bankruptcies.. I might understand.

But.. his credit history is excellent.. that doesn't matter?

CPU
Having a high credit score may not be enough to secure a loan as your income has no factor with the calculation of your credit score. Furthermore, the source of your friend's income (buying & selling antiques) doesn't sound particularly stable to me. If the market goes bad for antiques, does he have a backup plan for earning an annual income of $50k?

cpumechanic
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by cpumechanic » Fri Dec 08, 2017 4:46 pm

Adding background information.. Family friend is >60 years old.. and has done antiques for many years... income goes up and down, and no.. if selling Antiques went south... he would not have other options to "earn" income.

So.. you have assets, you have a long history of paying off any/all debts... but without income.. banks won't loan you money.

Sorry.. but I am beginning to understand my friends frustration..
=====================================================
I am credit worthy based on my history
I have assets.. >>>> than the loan required....
---------------------------------------------------
But Bankers assume I am a low life scum.. and will take the money and run.. and move to Bora Bora with a new wife.. drop dead there and leave my million dollar property behind for the bank scavengers to Auction off at 10 cents on the dollar...

(Sorry exaggerating I know).


Whatever happened to honorable people , lending money to honorable people.

Sigh.. welcome to 2017

Ok.. more feedback welcome but glad I signed up for my Heloc 3 years ago while I was employed.

CPU
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bkweathe
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by bkweathe » Fri Dec 08, 2017 5:03 pm

No income from a $1MM farm? That seems odd. There can be bad years, but a farm should be producing considerable income most years. Mine does. Is it really a farm?

If he's really getting no income from it, maybe he needs to reconsider how he's using this property?

Brad

ResearchMed
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by ResearchMed » Fri Dec 08, 2017 5:03 pm

cpumechanic wrote:
Fri Dec 08, 2017 4:46 pm
Adding background information.. Family friend is >60 years old.. and has done antiques for many years... income goes up and down, and no.. if selling Antiques went south... he would not have other options to "earn" income.

So.. you have assets, you have a long history of paying off any/all debts... but without income.. banks won't loan you money.

Sorry.. but I am beginning to understand my friends frustration..
=====================================================
I am credit worthy based on my history
I have assets.. >>>> than the loan required....
---------------------------------------------------
But Bankers assume I am a low life scum.. and will take the money and run.. and move to Bora Bora with a new wife.. drop dead there and leave my million dollar property behind for the bank scavengers to Auction off at 10 cents on the dollar...

(Sorry exaggerating I know).


Whatever happened to honorable people , lending money to honorable people.

Sigh.. welcome to 2017

Ok.. more feedback welcome but glad I signed up for my Heloc 3 years ago while I was employed.

CPU
It's really not appropriate (as in "accurate") here to think of this as the bank considering this prospective borrower as "scum".
No one is considering him "dishonorable" (or we assume not, anyway, with the information given).

It's just business and probabilities. A single bad illness, and this person can't pay the loan, the bank would need to foreclose and deal with selling the property, just to collect a small portion of the presumed sale value.
Ditto another great recession or similar, and the discretionary spending on antiques might plummet.
These are reasonable concerns for any lender, and it does *not* need to reflect poorly on your friend, although it obviously can feel that when when rejected. Keep in mind, they would know he owns a million dollar farm, not "scummy" at all, with only a relatively small mortgage.
Their concern is only with the likelihood of his ongoing ability to pay, to some extent not necessarily under his control.

RM
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by AlmstRtrd » Fri Dec 08, 2017 5:10 pm

I was in a very similar position about a year ago. What the bank is likely looking at is your friend's income to debt ratio if it gives him the HELOC.

My situation was that I needed cash flow for about 18 months while I was waiting for a favorable time (in terms of price and taxes) to sell a home. I was able to "sell" the bank on giving me the HELOC by pointing out to them that I was only 18 months away from being able to draw funds from IRAs at age 59.5. I'm not sure why they didn't work that out on their own, but...

You mentioned that your friend is over 60. Does he happen to have any retirement accounts?

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by flamesabers » Fri Dec 08, 2017 5:12 pm

cpumechanic wrote:
Fri Dec 08, 2017 4:46 pm
Adding background information.. Family friend is >60 years old.. and has done antiques for many years... income goes up and down, and no.. if selling Antiques went south... he would not have other options to "earn" income.

So.. you have assets,
Not all assets are the same. There's a world of difference between a relatively liquid assets such as mutual funds and an illiquid asset like a farm. If your friend happens to default on the loan, the bank may have to spend a lot of money trying to sell the farm or a portion of the farm.

Consider this, you can easily check online to see what the precise value is of your mutual funds and what you could sell them for. On the other hand, does your friend know the precise value of his farm on a daily basis? Even if his farm is appraised to be $1 million, that appraised value doesn't guarantee he will be getting $1 million in his account. He might have to lower the selling price to get a willing buyer.
cpumechanic wrote:
Fri Dec 08, 2017 4:46 pm
you have a long history of paying off any/all debts...
Past performance doesn't guarantee future results. Even if he is the most dependable guy in the world, there is still a chance he could get into a financial hardship (through no fault of his own) that negates his ability to pay his debts.
cpumechanic wrote:
Fri Dec 08, 2017 4:46 pm
but without income.. banks won't loan you money.
Income is a reliable indicator of one's ability to service debt. It's not foolproof, but if one doesn't have a steady source of income it does raise the risk of the person being able to payoff the debt.

The bank isn't making a moral judgement by denying him a loan. The bank is making a risk assessment and has concluded he's too much of a risk to loan money to.

MathWizard
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by MathWizard » Fri Dec 08, 2017 5:31 pm

This is just another version of being house poor. He has large amounts of assets that are not income producing.
That is not a farm, it is an acreage, and one that he cannot afford.

If the million dollar farm is not generating at least $40 K/yr , and he does not have much else in income,
he should sell it, use $60K to pay off the loan, invest the rest of the money, and use that income.

lhl12
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by lhl12 » Fri Dec 08, 2017 5:37 pm

You've described a HELOC, which is a product intended for a borrower's primary residence. Is this farm your friend's primary residence?

If not, or if the HELOC idea doesn't work, he might consider exploring a business line of credit (which would be made out of the small business side of the bank, not the home mortgage side).

EJS22
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by EJS22 » Fri Dec 08, 2017 5:43 pm

If the mortgage or HELOC doesnt work, maybe look into hard money lenders or getting a personal loan. Lending Club seems to give anyone money according to all the defaults I see on the investment side. SOFI gives up to 100k personal loans. Both of these options will just be at a much higher interest rate and shorter period.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Nate79 » Fri Dec 08, 2017 5:46 pm

Put it another way. You are describing a person (based on the info you have provided) that is >60y old, income $50k, and is so broke doesn't have enough liquid assets to get themselves out of debt and instead needs to roll the debt to more debt? How about they work thru the debt, cut expenses, sell something, etc? The fact that 840 credit score was even brought up in the discussion sounds more like someone who worships at the credit score alter thus living in debt vs cranking down and paying it off.

Are they debt free except for this $60k?
Any other assets besides the farm? (retirement accounts, CD's, cash, etc)

Another question I would have is if he mortgages the farm against this HELOC would the bank have the right to foreclose or is there any type of homestead or other type of state law that would prevent foreclosure on a farm/home?

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by alex_686 » Fri Dec 08, 2017 5:47 pm

NINJA Loans were common before 2008. No Income, No Job, and No Assets. Your friend would fit this type of loan, he has assets but maybe not enough income. NINJA loans were one of the things that help cause the real estate blow up. Too many loans made to little old ladies who could never afford to repay their loans.

Regulators really tightened down after that and insisted on higher quality loans. We can debate if they threw the baby out with the bathwater. What income would your friend use to pay off the HELOC? I am assuming that since he is self employed his income is variable and hard to document. The point being that banks like nice tidy boxes and your friend does not fall into one of their boxes.

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corn18
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by corn18 » Fri Dec 08, 2017 5:51 pm

Why not sell the farm?

cpumechanic
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by cpumechanic » Fri Dec 08, 2017 5:53 pm

Ok..

He also has 50K available in cash to support his business.. but does not want to use this to pay off his Mortgage.

To clarify Farm is a farm he has owned for many years.. and is not a working farm with income.

He has other property.. and a net worth much greater than just the farm/property.

I understand the feedback being presented.. I am just shocked that banks have no method to look at individuals with a long history of paying off any/all debts.

Yes .. I understand that if he dropped dead tomorrow.. it would take the lender a long time to recover the loan.. but my engineering sense says that the bank has near zero risk.

CDO's and crappy Mortgages got merged prior to 2008.. and everyone was happy making money and partying in NYC.

(Sorry again.. just a rant above.)

Now.. an honorable borrower.... wants to borrow a very small amount (based on assets)...and banks say.. nope.. too risky.. you might die tomorrow and we don't want to spend any money collecting the debt.

Sorry... but if it was 1960 or 1950... I don't think a local bank would hesitate to lend money to an upstanding local citizen.

Again.. I know this is a rant..and I don't want to make anyone angry... but....

Ok.. I best stop here.. any helpful suggestions on a path forward welcomed.. I fully understand that with suspect income.. banks won't open a new loan

regardless of assets or history.

Regards all, thank you to all who took time to educate me.

CPU
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Svensk Anga
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Svensk Anga » Fri Dec 08, 2017 5:58 pm

It might be that seeking a HELOC is the problem. He may do better applying for a first mortgage. Mortgage term would be longer, so lower payments and more easily serviced on low income. A bank holding a first mortgage is in better position to get repaid should they have to foreclose. (Can one get a first mortgage after taking out a HELOC? Bank could be worried about him borrowing much more against the farm. The bank's interest would be more secure if they held the first mortgage.)

Are there any IRA's/401k's available? I understand that once you are past age 59.5 for penalty-free withdrawals, there are loan programs that can consider your retirement plan balance divided by 360 (months) as income available to service the loan.

If he is not working the farm, he should at least rent it out to someone who will and so generate some income.

cpumechanic
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by cpumechanic » Fri Dec 08, 2017 6:00 pm

Feedback...

Alex
NINJA Loans were common before 2008. No Income, No Job, and No Assets.

The no Assets don't apply here farm and other assets are available.. ...banks won't participate is the issue.

Why not sell the farm...

Ok... Let me ask my friend who has lived on his farm (now worth 1 million dollars) for 40 years to sell it to cover the 50K balloon mortgage coming due soon... then I better duck...because he might punch me in the mouth for suggesting something he would never do.

Heloc is just one example of banks not lending.. Remortgage is not available either.. same response.. income is too low.

So....to repeat.. in 2017.. personal assets and credit history is not used to loan money, only income.

Sorry.. this makes no sense to me as I stated earlier as a nerd engineer.

But.. I am not a banker.

CPU
Last edited by cpumechanic on Fri Dec 08, 2017 6:07 pm, edited 1 time in total.
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indi
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by indi » Fri Dec 08, 2017 6:04 pm

Would your friend consider selling off a small amount acreage to cover the amount of the balloon payment? Selling off a few acres from a large parcel would have the added benefit of reducing property taxes.

Another option would be to lease the land to tenant farmers and use that as a source of income to pay off the bank.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by mouses » Fri Dec 08, 2017 6:05 pm

I ran into a similar oddity about a decade ago, when I was selling my house and buying a house on the other side of the country. To manage the chaos, I wanted to own both houses for awhile. I had much more in the value of the first house (in a HCOL area, the second house was in a LCOL area) and additionally much more in my IRAs, which I didn't want to break into, than I wanted to borrow.

I got nowhere because this stuff was all automated and income was the only thing that counted.

What finally happened was my sister-in-law was a guru in some part of a financial MegaCorp and talked to someone and they ponied up the loan.

OP, could your friend carve off a small portion of the farm and sell it? Or sell something else?

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by corn18 » Fri Dec 08, 2017 6:08 pm

cpumechanic wrote:
Fri Dec 08, 2017 5:53 pm

He has other property.. and a net worth much greater than just the farm/property.


CPU
If he won't sell his farm of 40 years, why not sell some other property? Is he being a curmudgeon?

texas lawdog
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by texas lawdog » Fri Dec 08, 2017 6:09 pm

Assets and credit score are not the only factors that a bank uses to determine loan eligibility.
Other factors include work history, loan purpose, current income, occupation, etc..
Each factor is usually given a relevant weight (with income probably given the highest weight) for a bank to model the loan.

If he can't get a loan thru the traditional method, then he will probably need to seek out a new method to get a loan (i.e. Lending Club) - although might be a challenge if he doesn't have any computer skills.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by quantAndHold » Fri Dec 08, 2017 6:22 pm

Making home equity loans to someone who has a lot of equity but not enough income to pay the loan back is a form of predatory lending. A legitimate lender doesn't want a loan that can't be paid back.

If your friend wants to keep the farm, he needs to restructure how he's using the property so that it will pay for itself. Then he will have no problem getting the loan. My suggestion would be that if it's productive farmland, to lease it to someone who can work it, and use the lease as income for a refi. If it's not productive land, he probably needs to sell some assets.

Back in the day, grandad was a farmer. When he was ready to retire, he kept the house, the barn, the kitchen garden, and the pasture next to the barn for himself, and leased out the rest of the property to his next door neighbor. The combination of his social security and the lease income paid for his retirement. Maybe your friend could do something similar.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by flamesabers » Fri Dec 08, 2017 6:51 pm

cpumechanic wrote:
Fri Dec 08, 2017 6:00 pm
Sorry.. this makes no sense to me as I stated earlier as a nerd engineer.
It could possibly be as simple as the lenders having a policy that says if applicants doesn't have a certain type of income then they won't get any type of loan.

Even if the variable self-employment income isn't the dealbreaker, there are other potential concerns lenders have about your friend. For instance, why doesn't he sell his other assets to pay off his mortgage? Why doesn't he rent out his farm to someone else to generate an income? Being conservative on risk tolerance, lenders might assume worst-case scenarios: his other assets aren't as valuable as they seem to be at first glance, the farm lacks the natural resources to be profitable, there isn't a strong demand for farmland in the area, etc. More likely than not, banks prefer to err on the side of caution of not lending to a solvent person then lending to person who becomes insolvent.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Mike Scott » Fri Dec 08, 2017 6:52 pm

He might be able to draw that much from retirement accounts. He should be able to get a "personal" loan if he has that much in CDs at the bank. He could lease the property. He could sell a few acres. He could probably get nearly that much in credit card cash advances.

From a distance, it seems like he is not thinking about the level of hassle he is in for if he does not do something that will quickly raise the money and it seems that he has plenty of resources.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Carefreeap » Fri Dec 08, 2017 7:18 pm

Svensk Anga wrote:
Fri Dec 08, 2017 5:58 pm
It might be that seeking a HELOC is the problem. He may do better applying for a first mortgage. Mortgage term would be longer, so lower payments and more easily serviced on low income. A bank holding a first mortgage is in better position to get repaid should they have to foreclose. (Can one get a first mortgage after taking out a HELOC? Bank could be worried about him borrowing much more against the farm. The bank's interest would be more secure if they held the first mortgage.)

Are there any IRA's/401k's available? I understand that once you are past age 59.5 for penalty-free withdrawals, there are loan programs that can consider your retirement plan balance divided by 360 (months) as income available to service the loan.

If he is not working the farm, he should at least rent it out to someone who will and so generate some income.
60k may be too small a loan. Many lenders won't make small loans because they don't make enough money on them.

O.P. Does your friend have access to local credit unions? They may be more inclined to make a small loan especially if they know of the person and know the asset. But keep in mind they too are regulated and will have guidelines they must follow. He may need to get creative and have to part with some of his cash in order to meet their requirements.

He also should check out an independent loan broker. They may know of an FHA or similar type program for farms.

livesoft
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by livesoft » Fri Dec 08, 2017 7:26 pm

The OP can always loan him the money, too.
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by JBTX » Fri Dec 08, 2017 7:40 pm

cpumechanic wrote:
Fri Dec 08, 2017 6:00 pm
Feedback...

Alex
NINJA Loans were common before 2008. No Income, No Job, and No Assets.

The no Assets don't apply here farm and other assets are available.. ...banks won't participate is the issue.

Why not sell the farm...

Ok... Let me ask my friend who has lived on his farm (now worth 1 million dollars) for 40 years to sell it to cover the 50K balloon mortgage coming due soon... then I better duck...because he might punch me in the mouth for suggesting something he would never do.

Heloc is just one example of banks not lending.. Remortgage is not available either.. same response.. income is too low.

So....to repeat.. in 2017.. personal assets and credit history is not used to loan money, only income.

Sorry.. this makes no sense to me as I stated earlier as a nerd engineer.

But.. I am not a banker.

CPU
It’s just math. Based upon what you are saying he doesn’t have enough income to support significant debt payoff. The fact that he has a million dollar farm is irrelevant. He isn’t going to sell that and the bank doesn’t want to be in the farming business. Banks and creditors typically lend based upon your income cash flow, not on your assets.

I’m sorry that is not an answer you like but it is one you have been given 10 times in this thread and like it or not that is how it is.

I would think there would be some program for farm loans out there but not at all my area of expertise.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Lonestarz » Fri Dec 08, 2017 8:09 pm

Yes, I’m perplexed why he is sitting on and paying taxes for $1mm land that isn’t used - why not lease it out to earn income? I probably wouldn’t loan out money to an old person with no liquid assets besides what appears to be a large rural homestead (is it still a farm if you don’t farm it?)

Besides, he had maybe 30 years to plan for this balloon payment - things aren’t really adding up to responsibility. Especially trying to figure things out so close to the deadline.

You could loan him the money for a lien on his land but he ware it might be difficult to foreclose on his homestead

petulant
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by petulant » Fri Dec 08, 2017 8:14 pm

livesoft wrote:
Fri Dec 08, 2017 7:26 pm
The OP can always loan him the money, too.
I hear the friend is honorable and upstanding. Probably a good credit risk for OP.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by windrose » Fri Dec 08, 2017 8:23 pm

cpumechanic wrote:
Fri Dec 08, 2017 3:55 pm

Multiple Bank feedback is his income is "too low" to qualify.

I am no banker.. but I thought as long as you had assets free and clear (he does) and a good long credit history (he does Score > 800).. getting a Heloc to pay off the $60K balloon should be easy.'

CPU
I make less than your friend and have qualified for many mortgages, for much larger amounts, through the years.

I think the problem here is that it is a farm--so he's attempting to apply home loan type lending rules to something that is not a home (unless there is a house on it as well? If so, maybe the zoning is the issue).

I don't know much about farm lending, but from your description it sounds a bit like a commercial loan--short terms of 5-7 years, higher interest, and a balloon at the end. They are MUCH harder to qualify for than traditional home loans or HELOCs.

As others have said, the amount of the loan is also an issue (I hear 80K is the minimum these days) but he may be able to just get an old fashioned loan from a bank vs. a mortgage... I have family members who done that when buying low cost real estate. The interest rates will not be as competitive. Try asking a local real estate agent, they often know how buyers can obtain "creative" financing and might be able to point him in the same direction.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by JBTX » Fri Dec 08, 2017 9:29 pm

Also if you have a million dollars of farm land why wouldn’t you lease the land for farming purposes?

TravelGeek
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by TravelGeek » Fri Dec 08, 2017 9:41 pm

So the bank that is the current mortgage lender won’t refinance? If the theory is that they are concerned about default and then aging to deal with the sale of the farm, isn’t tha5 exactly what is going to happen if the “farmer” can’t make the balloon payment?

So... other than the $50k no other liquid assets that could be used to pay back the loan? What’s the long term plan for retirement?

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by grabiner » Fri Dec 08, 2017 11:29 pm

A credit score is based only on your credit report. If you have a good credit score, this means that people with credit reports like yours are likely to repay their loans.

But the underwriting decision is based on other factors as well, such as the relationship of the loan to the collateral and to your income. For example, most banks will refuse to offer a mortgage to anyone if the payment exceeds X% of his or her income, and require mortgage insurance if the mortgage is more than 80% of the appraised value, even if the borrower has good credit. Underwriting often varies by bank; you could try another bank or credit union, and see whether it will offer a loan.

This happened to me once. In 2001, I was starting a new, higher-paying job, and needed a new car. I wanted a loan; I had enough stock to pay for the car, but would have had a very large taxable gain if I sold the stock. My credit union didn't care about my high credit score, my stock, or my salary (which would have easily allowed me to pay for the car); it would not offer an auto loan to anyone without at least six months at his or her present job. So I joined a new credit union at my new job; this credit union was happy to pre-approve me for a loan.
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by eye.surgeon » Sat Dec 09, 2017 3:33 am

The fact that he's seeking one loan to pay off another loan pretty much answers your question.
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Yukon
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Yukon » Sat Dec 09, 2017 7:05 am

I'm guessing it's difficult to net 60k from antique sales in 2017. Any chance that number is from 2008?
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by onourway » Sat Dec 09, 2017 7:24 am

It sounds like your friend is good at acquiring hard assets, but has a hard time managing cashflow. These have largely been suggested already, but again, he has *lots* of other options. He has chosen a non-traditional way of managing his wealth, yet he's miffed that the traditional banks won't play ball. With his situation he needs to either; a) lease some of the farmland to produce some additional income, b) sell a portion of the farm to pay the loan that is due, or c) sell some of the other property you say he owns. Option d) taking a loan to pay off a loan is the worst option and it's no wonder the banks aren't interested.

Think of it this way. If instead of $1M in a farm he had $1M in a taxable brokerage account and had this payment coming up, what would he do? Presumably he'd sell some of his brokerage assets to cover the payment. His assets may be in a different form, but the path should be the same.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by TomatoTomahto » Sat Dec 09, 2017 8:15 am

Mike Scott wrote:
Fri Dec 08, 2017 6:52 pm
From a distance, it seems like he is not thinking about the level of hassle he is in for if he does not do something that will quickly raise the money and it seems that he has plenty of resources.
Bingo. And OP isn’t thinking about how much hassle the bank would be signing up for to make, at best, a small profit and at worst, a legal game of whack-a-mole.

Don’t blame the bankers for being realists.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by runner540 » Sat Dec 09, 2017 8:21 am

TravelGeek wrote:
Fri Dec 08, 2017 9:41 pm
So the bank that is the current mortgage lender won’t refinance? If the theory is that they are concerned about default and then aging to deal with the sale of the farm, isn’t tha5 exactly what is going to happen if the “farmer” can’t make the balloon payment?

So... other than the $50k no other liquid assets that could be used to pay back the loan? What’s the long term plan for retirement?
I think the prospective HELOC lenders may be looking at it as, there is already a mortgage, and now he wants more debt. They (1) don't have an assurance that the HELOC proceeds will be used to pay down the first mortgage, and (2) are probably concerned that once the mortgage is gone, then OP's friend could theoretically go get another first mortgage, putting the HELOC lender second in line again.

When I graduated form college and had a signed job offer in hand for a nice salary from a well known company, I went to the bank to get my credit card limit raised so that I could use it for business travel expenses. No dice. Once the paychecks started rolling in to that bank, then I got offers for a much bigger credit limit.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Watty » Sat Dec 09, 2017 8:40 am

I suspect that you may not be getting the whole story since a lot of things don't add up and the banks may be easy to blame when he is talking to you.

As others have said;

The farm should be producing income. Farm equipment that has not been used in years will have little value so most of the value is likely in the land. It will vary a lot but if farmland in your area sells for around $5,000 an acre then that implies that the farm is around 200 acres to be worth a million dollars. That is a lot of land to leave fallow, or his valuation may be off. If the farmland is not farmed for a number of years it will become overgrown and be hard to put back into production.

Netting $50K by selling antiques is a lot in this market, many traditional antique stores have gone out of business. Antiques are not popular with younger people and they often sell off family antiques when they inherit them so there is a glut of antiques coming on the market. Online sales have also pushed pushed down prices a lot. Having that much income implies selling hundreds of thousands of dollars of antiques each year and having a similar amount of inventory. If he has that much inventory he might be able to get a loan that is secured by the inventory or just draw down his inventory some to raise the needed cash to pay off the loan.

I would suspect that he might have gross sales of $50K(in a good year) which is still a lot in this market for someone without computer skills who could do a lot online selling. If he has not been paying taxes on that income then he may not be able to prove that income to the banks.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by in_reality » Sat Dec 09, 2017 8:45 am

JBTX wrote:
Fri Dec 08, 2017 9:29 pm
Also if you have a million dollars of farm land why wouldn’t you lease the land for farming purposes?
I’d assume the barn and maybe other facilities are used for antique storage.

Someone may have everything they need in the area, while other potential renters might need the space.

And if the farm had to be sold to pay the debt, maybe that’d be the end of the antique business.

Anyway, $50,000 in income could include both rent received on the land and antique sales.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by cpumechanic » Sat Dec 09, 2017 9:16 am

Hello all

Thanks for all the replies, most nice, some not so much.

I don't have a lot of intimate details to share on my friends finances, but he is a high end antique dealer and does indeed make the income from buying selling those items, and yes.. the recent market is worse then it has been.

I have suggested that he contact some local credit unions.. and he has done some of that...

I will also inquire as to why his farm land is not leased.. I don't know how many acres he has, just his estimate of the overall value.

I am confident that he can/will come up with some way of paying the upcoming balloon payment, and have read the feedback.

And yes.. many of the buildings are full of antiques.. in fact some of the items he has purchased are now on display at the Smithsonian in DC.

Summary is :

1.0 Low income No Loan
2.0 Small Loan value not enough profit , not interested
3.0 Your history of payment reflected in >800 credit score is meaningless we are running a business and all we care about is payment tomorrow.
4.0 We don't want to mess around with liquidating a farm if you default too much work.
5.0 Potential loan that is fully secured with land assets only are not feasible in the 2017 world of banking. Unless you have income, assets are meaningless.

Thanks again for the feedback.. and No.. I learned long ago that lending friends money is a sure way to end a friendship so.. nope.. I am not going down that path.. that's what banks are for.. as stated.. nothing personal.. just business.

CPU
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by JBTX » Sat Dec 09, 2017 2:50 pm

in_reality wrote:
Sat Dec 09, 2017 8:45 am
JBTX wrote:
Fri Dec 08, 2017 9:29 pm
Also if you have a million dollars of farm land why wouldn’t you lease the land for farming purposes?
I’d assume the barn and maybe other facilities are used for antique storage.

Someone may have everything they need in the area, while other potential renters might need the space.

And if the farm had to be sold to pay the debt, maybe that’d be the end of the antique business.

Anyway, $50,000 in income could include both rent received on the land and antique sales.
If they were leasing the land, the lessee probably wouldn't need to facilities. I'd assume a nearby farmer would lease it and would have his own facilities at his own farmstead.

I have an inlaw that farms, and in addition to his own land, he leases land from several other local farmers who would rather just get lease income than hassle with the whole farming thing - these often could be retirees.

If the $50k included land leasing income, it is one more indication that this operation is not a viable ongoing concern and thus the hesitancy of banks to lend to it.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by TravelGeek » Sat Dec 09, 2017 2:55 pm

runner540 wrote:
Sat Dec 09, 2017 8:21 am

I think the prospective HELOC lenders may be looking at it as, there is already a mortgage, and now he wants more debt. They (1) don't have an assurance that the HELOC proceeds will be used to pay down the first mortgage, and (2) are probably concerned that once the mortgage is gone, then OP's friend could theoretically go get another first mortgage, putting the HELOC lender second in line again.
I wasn’t actually thinking of a new HELOC, but rather a refinancing of the existing mortgage, which the OP stated was explored and rejected by the banks. My point was: if they reject the refinancing because they are afraid they might be getting themselves a farm they don’t want, how is that different from the situation they are currently in?

UncleBen
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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by UncleBen » Sat Dec 09, 2017 3:09 pm

Farm credit bureaus will often loan on farms that banks won't touch.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by Anon1234 » Sat Dec 09, 2017 3:11 pm

MathWizard wrote:
Fri Dec 08, 2017 5:31 pm
This is just another version of being house poor. He has large amounts of assets that are not income producing.
That is not a farm, it is an acreage, and one that he cannot afford.

If the million dollar farm is not generating at least $40 K/yr , and he does not have much else in income,
he should sell it, use $60K to pay off the loan, invest the rest of the money, and use that income.
Tree farms can go a decade or two between income generating events.

OP, does friend have a tree farm? Or is it just unproductive land?

My 2c would be to use the antique money to pay the mortgage, then use lending club to finance the antiques. In addition, liquidate the antiques that are sitting in the warehouses.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by deltaneutral83 » Sat Dec 09, 2017 3:17 pm

cpumechanic wrote:
Sat Dec 09, 2017 9:16 am
3.0 Your history of payment reflected in >800 credit score is meaningless we are running a business and all we care about is payment tomorrow.
I had an 800 credit score at age 24 after having 3 credit cards in my name for 6 years with zero income/zero assets (obviously assets are an unknown anyhow to FICO score). Any continued analysis on this aspect of this underwriting or a similar underwriting is not relevant. Banks are not in the collateral business, especially illiquid like farm land. If they were, they'd get even more pushback from regulators if they were making loans based on low LTV just to foreclose and make profit. Profit on a $60k HELOC is peanuts for lending institution. Debt to payoff debt is typically not a good sign for the majority. This borrower is not the exception and in fact is the case study from the details provided.

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Re: 840 credit score Million dollar farm.. low income cannot get Heloc?

Post by ResearchMed » Sat Dec 09, 2017 3:21 pm

cpumechanic wrote:
Sat Dec 09, 2017 9:16 am
Hello all

Thanks for all the replies, most nice, some not so much.

I don't have a lot of intimate details to share on my friends finances, but he is a high end antique dealer and does indeed make the income from buying selling those items, and yes.. the recent market is worse then it has been.

I have suggested that he contact some local credit unions.. and he has done some of that...

I will also inquire as to why his farm land is not leased.. I don't know how many acres he has, just his estimate of the overall value.

I am confident that he can/will come up with some way of paying the upcoming balloon payment, and have read the feedback.

And yes.. many of the buildings are full of antiques.. in fact some of the items he has purchased are now on display at the Smithsonian in DC.

Summary is :

1.0 Low income No Loan
2.0 Small Loan value not enough profit , not interested
3.0 Your history of payment reflected in >800 credit score is meaningless we are running a business and all we care about is payment tomorrow.
4.0 We don't want to mess around with liquidating a farm if you default too much work.
5.0 Potential loan that is fully secured with land assets only are not feasible in the 2017 world of banking. Unless you have income, assets are meaningless.

Thanks again for the feedback.. and No.. I learned long ago that lending friends money is a sure way to end a friendship so.. nope.. I am not going down that path.. that's what banks are for.. as stated.. nothing personal.. just business.

CPU
Your #5: Correct. If there is no income, NO one is going to give someone a loan, regardless of what they "own", be it a farm, or a regular house, or jewelry, or clothing, or furniture, or a sterling tea set.
If the person trying to borrow isn't willing to "sell something" to pay their own ongoing living expenses (or such) and has insufficient income to repay the loan (and far worse if NO income), then how is a lender expecting to get repaid?

And then there is #2: Of *course* what a lender "cares about" is that there is a source of income for those loan payments, and starting with that *first* payment.

That high credit score is indeed helpful *IF* there is sufficient income. Then that nice score indicates the borrower is likely to have priorities straight, and repay the loan in a responsible manner, rather than running of to Vegas with each fully monthly income check or such. That high credit score is not going to help get the cash flow to pay living costs plus loan repayments.

Bottom line is... what is unclear about this?
Why is there such an attitude about how banks operate? There is nothing unusual here, or not from details posted.

RM
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