HELOC issues

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Topic Author
nymd2
Posts: 3
Joined: Tue Feb 05, 2019 9:15 pm

HELOC issues

Post by nymd2 » Tue Feb 05, 2019 9:26 pm

Hello all,

Well, I’ve dug myself into a bit of a hole.

We purchased our first home with the intention of gut-renovating and expanding it. We had an appraisal of the property done during the purchasing process which was arranged by Citi (our mortgage lender).

I thought we had enough cash to get through the reno/expansion and took my time applying for a HELOC. The project was well underway by the time our application went through with Citi. I assumed they would have been good with our appraisal that they had completed within the past few months. Unfortunately, Citi tells me that they cannot approve a HELOC, as the original assessment is not sufficient for their purposes and we need a new appraisal (which cannot be done once the kitchen and bathrooms have been taken out and the house is considered not habitable). They have asked me to reapply once the kitchen and bathrooms are done (which defeats the purpose of the loan!)

Are there other lenders out there that will approve a HELOC application without an on-site appraisal?

Alternatively, what other loan options are out there? Is a personal loan all I can consider at this point?

We may end up being okay in terms of completing this project with our cash flow, but it will be close. Having a nice sized loan or line of credit would make us feel a lot better.

Thanks as always to all of you for your help!

Nymd2 (preciously nymd)

Silk McCue
Posts: 2045
Joined: Thu Feb 25, 2016 7:11 pm

Re: HELOC issues

Post by Silk McCue » Wed Feb 06, 2019 7:38 am

You don't say how much money you are needing to feel comfortable. I think that the easiest would be getting a credit card with a long zero interest offer and switch your spending to this card and pay the minimum required in order to stop the drain of your cash. Just count every penny spent the same as you would have before. Depending upon how much you need I if you have a paid off late model year car you could get a used car loan against it which should have favorable rates. I also expect that there are HELOC lenders that will not require an appraisal as they will use public records.

Cheers

Topic Author
nymd2
Posts: 3
Joined: Tue Feb 05, 2019 9:15 pm

Re: HELOC issues

Post by nymd2 » Wed Feb 06, 2019 9:11 pm

Thanks for your reply. We have definitely considered using a credit card or two to bridge us towards the end of the project.

Just to fill in some details:

The renovation budget is about 600-700k.

We are high income. We can probably afford the renovation with what’s in our savings account and what comes into our checking account. But it may tap us dry and possibly cost us up to 30k (absolute worst case scenario) beyond our savings if we run into any surprises at the very end.

We anticipate that we could pay off a 30k loan in 3 months.

Credit cards would probably be sufficient, but does anyone know of any specific lenders who will approve a HELOC based on market value rather than an on-site appraisal?

Thanks everyone!

Silk McCue
Posts: 2045
Joined: Thu Feb 25, 2016 7:11 pm

Re: HELOC issues

Post by Silk McCue » Wed Feb 06, 2019 9:14 pm

nymd2 wrote:
Wed Feb 06, 2019 9:11 pm
Thanks for your reply. We have definitely considered using a credit card or two to bridge us towards the end of the project.

Just to fill in some details:

The renovation budget is about 600-700k.

We are high income. We can probably afford the renovation with what’s in our savings account and what comes into our checking account. But it may tap us dry and possibly cost us up to 30k (absolute worst case scenario) beyond our savings if we run into any surprises at the very end.

We anticipate that we could pay off a 30k loan in 3 months.

Credit cards would probably be sufficient, but does anyone know of any specific lenders who will approve a HELOC based on market value rather than an on-site appraisal?

Thanks everyone!
These are just the sort of details that are best shared in the original posts so that those responding can have context. Good thing I didn't suggest a bake sale lol..

Cheers

chw
Posts: 550
Joined: Thu May 24, 2012 4:22 pm

Re: HELOC issues

Post by chw » Wed Feb 06, 2019 9:31 pm

As a retired mortgage banker, I would say you are going to have trouble getting a loan from most lenders because of one 1) the house cannot be occupied in its current condition, and 2) the home could be subject to mechanics liens, which would supersede a HELOC loan.

Best suggestion would be to see if you can get a mortgage from the holder of your brokerage account if they offer mortgage lending. It's possible they may offer a portfolio type product that is underwritten taking into account the invested assets with the brokerage, as well as your overall lending profile.

Other than the above, I would simply borrow the funds with the cheapest personal loan you can obtain, and then payoff when you're able to obtain the HELOC.

delamer
Posts: 6927
Joined: Tue Feb 08, 2011 6:13 pm

Re: HELOC issues

Post by delamer » Wed Feb 06, 2019 9:49 pm

Are you living in the house during the reno?

Our HELOC is with TD Bank and if they did an appraisal, it was a drive-by. But the house was our primary residence, not a home we were renovating to move into later.

user5027
Posts: 814
Joined: Sat Jun 16, 2012 8:54 pm

Re: HELOC issues

Post by user5027 » Thu Feb 07, 2019 8:26 am

You may want to try for a construction loan. Will have a higher rate. It is what builders use during construction. Principal is doled out by bank during the progress. Once completed a mortgage can be obtained to pay off the construction loan.

I found myself in a similar situation in 1988 and posted earlier about it...
viewtopic.php?f=2&t=187649&p=2847273#p2847273

Topic Author
nymd2
Posts: 3
Joined: Tue Feb 05, 2019 9:15 pm

Re: HELOC issues

Post by nymd2 » Sun Feb 10, 2019 9:31 pm

Thanks as always for all the thoughtful suggestions.

We are not currently living in the house, so I doubt a drive-by appraisal will be offered.

I think we will probably end up being in ok shape with credit cards for a short period of time for a relatively small deficit in funds. I think we will able to qualify for a HELOC pretty quickly after the project is done, and turn around and pay off the credit card balance. Worst case, we could also apply for a personal loan if we need cash on hand but I doubt this will be necessary.

Thanks again for your thoughts!

retire2022
Posts: 285
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: HELOC issues

Post by retire2022 » Sun Feb 10, 2019 9:51 pm

OP, I agree with user5027, best to get a construction loan and convert to permanent once construction is complete, the bank considers HELOC too risky and they want another appraisal is red flag you may not complete the underwriting process.

Trism
Posts: 466
Joined: Mon Jul 18, 2016 6:34 pm

Re: HELOC issues

Post by Trism » Mon Feb 11, 2019 5:22 am

user5027 wrote:
Thu Feb 07, 2019 8:26 am
You may want to try for a construction loan. Will have a higher rate. It is what builders use during construction. Principal is doled out by bank during the progress. Once completed a mortgage can be obtained to pay off the construction loan.

I found myself in a similar situation in 1988 and posted earlier about it...
viewtopic.php?f=2&t=187649&p=2847273#p2847273
I was surprised to read that one could get a construction loan for something other than actually building a new house.

Looks like you were adding an entirely new level to your home.

Any idea where the threshold is? Silly example, but offered for illustration purposes: One couldn't get a construction loan to replace carpet or put in new countertops.

Trism
Posts: 466
Joined: Mon Jul 18, 2016 6:34 pm

Re: HELOC issues

Post by Trism » Mon Feb 11, 2019 5:30 am

nymd2 wrote:
Tue Feb 05, 2019 9:26 pm
Hello all,

Well, I’ve dug myself into a bit of a hole.

We purchased our first home with the intention of gut-renovating and expanding it. We had an appraisal of the property done during the purchasing process which was arranged by Citi (our mortgage lender).

I thought we had enough cash to get through the reno/expansion and took my time applying for a HELOC. The project was well underway by the time our application went through with Citi. I assumed they would have been good with our appraisal that they had completed within the past few months. Unfortunately, Citi tells me that they cannot approve a HELOC, as the original assessment is not sufficient for their purposes and we need a new appraisal (which cannot be done once the kitchen and bathrooms have been taken out and the house is considered not habitable). They have asked me to reapply once the kitchen and bathrooms are done (which defeats the purpose of the loan!)

Are there other lenders out there that will approve a HELOC application without an on-site appraisal?

Alternatively, what other loan options are out there? Is a personal loan all I can consider at this point?

We may end up being okay in terms of completing this project with our cash flow, but it will be close. Having a nice sized loan or line of credit would make us feel a lot better.

Thanks as always to all of you for your help!

Nymd2 (preciously nymd)
Generally speaking, the lower the LTV (first mortgage balance PLUS the HE line, divided by the estimated value) the lower the risk, and the more likely a lender is going to waive the appraisal requirement.

Also, many home equity lenders use automated valuation models in lieu of a physical appraisal, but these AVMs are not available for every property, and lenders deem AVMs to be most reliable in neighborhoods where there is a healthy number of recent sales of comparable homes.

If in doubt they'll send over a licensed appraiser to do a traditional valuation report.

user5027
Posts: 814
Joined: Sat Jun 16, 2012 8:54 pm

Re: HELOC issues

Post by user5027 » Mon Feb 11, 2019 8:24 am

Trism wrote:
Mon Feb 11, 2019 5:22 am
user5027 wrote:
Thu Feb 07, 2019 8:26 am
You may want to try for a construction loan. Will have a higher rate. It is what builders use during construction. Principal is doled out by bank during the progress. Once completed a mortgage can be obtained to pay off the construction loan.

I found myself in a similar situation in 1988 and posted earlier about it...
viewtopic.php?f=2&t=187649&p=2847273#p2847273
I was surprised to read that one could get a construction loan for something other than actually building a new house.

Looks like you were adding an entirely new level to your home.

Any idea where the threshold is? Silly example, but offered for illustration purposes: One couldn't get a construction loan to replace carpet or put in new countertops.
It turned into more than that. Early in, the builder uncovered termite damage and we wound up replacing the first floor walls also. The warranty on the termite inspection, several years earlier at purchase, had expired. :( People driving by would stop out of curiosity, see only the chimney standing and think that the house had burnt down.

Let me clarify, I never got a construction loan. I only offered to the OP that a construction loan was an option for the OP to consider.

Can't help you on a threshold.

Keep in mind the draws on a typical construction loan are paid by the bank directly to the contractor. As the homeowner borrower I would be careful to make sure the amounts are equitable to the completed work and the contractor is not overpaid before the work is done and walks.

Carpets and countertops? Personally I'd have the cash and not finance. I would likely pay with a credit card if the contractor accepts. Even if they want a few percent more. It is a cheap performance bond. If I am not happy with the work or soon discover a defect, I'll put the charge in dispute and avoid the small claims/collecting a judgement route.

Trism
Posts: 466
Joined: Mon Jul 18, 2016 6:34 pm

Re: HELOC issues

Post by Trism » Mon Feb 11, 2019 8:38 am

user5027 wrote:
Mon Feb 11, 2019 8:24 am
Trism wrote:
Mon Feb 11, 2019 5:22 am
user5027 wrote:
Thu Feb 07, 2019 8:26 am
You may want to try for a construction loan. Will have a higher rate. It is what builders use during construction. Principal is doled out by bank during the progress. Once completed a mortgage can be obtained to pay off the construction loan.

I found myself in a similar situation in 1988 and posted earlier about it...
viewtopic.php?f=2&t=187649&p=2847273#p2847273
I was surprised to read that one could get a construction loan for something other than actually building a new house.

Looks like you were adding an entirely new level to your home.

Any idea where the threshold is? Silly example, but offered for illustration purposes: One couldn't get a construction loan to replace carpet or put in new countertops.
It turned into more than that. Early in, the builder uncovered termite damage and we wound up replacing the first floor walls also. The warranty on the termite inspection, several years earlier at purchase, had expired. :( People driving by would stop out of curiosity, see only the chimney standing and think that the house had burnt down.

Let me clarify, I never got a construction loan. I only offered to the OP that a construction loan was an option for the OP to consider.

Can't help you on a threshold.

Keep in mind the draws on a typical construction loan are paid by the bank directly to the contractor. As the homeowner borrower I would be careful to make sure the amounts are equitable to the completed work and the contractor is not overpaid before the work is done and walks.

Carpets and countertops? Personally I'd have the cash and not finance. I would likely pay with a credit card if the contractor accepts. Even if they want a few percent more. It is a cheap performance bond. If I am not happy with the work or soon discover a defect, I'll put the charge in dispute and avoid the small claims/collecting a judgement route.
I was only hoping someone with firsthand experience could clarify for OP whether or not a construction loan is even an option for a renovation, because I do not believe it is.

I'm only familiar with construction loans when they're used to build an entirely new home, but that doesn't mean that's the only possible use case.

user5027
Posts: 814
Joined: Sat Jun 16, 2012 8:54 pm

Re: HELOC issues

Post by user5027 » Mon Feb 11, 2019 9:19 am

Trism wrote:
Mon Feb 11, 2019 8:38 am

I was only hoping someone with firsthand experience could clarify for OP whether or not a construction loan is even an option for a renovation, because I do not believe it is.

I'm only familiar with construction loans when they're used to build an entirely new home, but that doesn't mean that's the only possible use case.
Until that person posts... here is my local bricks and mortar bank...

https://www.fnbn.com/lending/constructi ... XVEALw_wcB
Construction Loans
Whether you’re planning an addition to your house, renovating an outdated kitchen, or building your dream home from the ground up, a residential construction loan from The First might be the solution. The First National Bank, with locations throughout Bucks County, offers loans for new construction or remodeling at very competitive rates.

User avatar
hand
Posts: 1243
Joined: Sun May 17, 2009 8:42 pm

Re: HELOC issues

Post by hand » Mon Feb 11, 2019 9:41 am

You may also wish to consider 1) a portfolio loan (using stocks as collateral rather than the property), 2) 401k loan.

Obviouis risks with both, but perhaps easier, better for the short term than banging your head against the wall of a conventional HELOC or failing to complete the renovation.

CRTR
Posts: 192
Joined: Sat Apr 11, 2015 1:15 pm

Re: HELOC issues

Post by CRTR » Mon Feb 11, 2019 11:58 am

hand wrote:
Mon Feb 11, 2019 9:41 am
You may also wish to consider 1) a portfolio loan (using stocks as collateral rather than the property), 2) 401k loan.

Obviouis risks with both, but perhaps easier, better for the short term than banging your head against the wall of a conventional HELOC or failing to complete the renovation.
+1

User avatar
8foot7
Posts: 1095
Joined: Mon Jan 05, 2015 7:29 pm

Re: HELOC issues

Post by 8foot7 » Mon Feb 11, 2019 12:04 pm

If you have excellent credit, something like Upstart or Lightstream will do unsecured personal loans up to 50k. If you're seriously talking paying these off within months then the interest will be negligible even at a bad rate.

Trism
Posts: 466
Joined: Mon Jul 18, 2016 6:34 pm

Re: HELOC issues

Post by Trism » Mon Feb 11, 2019 12:04 pm

user5027 wrote:
Mon Feb 11, 2019 9:19 am
Trism wrote:
Mon Feb 11, 2019 8:38 am

I was only hoping someone with firsthand experience could clarify for OP whether or not a construction loan is even an option for a renovation, because I do not believe it is.

I'm only familiar with construction loans when they're used to build an entirely new home, but that doesn't mean that's the only possible use case.
Until that person posts... here is my local bricks and mortar bank...

https://www.fnbn.com/lending/constructi ... XVEALw_wcB
Construction Loans
Whether you’re planning an addition to your house, renovating an outdated kitchen, or building your dream home from the ground up, a residential construction loan from The First might be the solution. The First National Bank, with locations throughout Bucks County, offers loans for new construction or remodeling at very competitive rates.
Nice. This goes on the list of things I learned today. Thank you.

Ben Mathew
Posts: 476
Joined: Tue Mar 13, 2018 11:41 am
Location: Seattle
Contact:

Re: HELOC issues

Post by Ben Mathew » Mon Feb 11, 2019 12:41 pm

nymd2 wrote:
Wed Feb 06, 2019 9:11 pm
possibly cost us up to 30k (absolute worst case scenario) beyond our savings
$30K can be financed by zero percent or low interest credit cards.

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