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Buying Another Home by Using Home Equity on the Primary

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  • 08-04-2018, 09:14 PM
    ilya980
    Buying Another Home by Using Home Equity on the Primary
    My question involves real estate located in the State of: Massachusetts

    Good evening everyone,

    Here is the situation: My wife and I jointly own a single-family house and wanted to buy another one in the same town. Since we had large down payment, it was suggested to us that we take home equity on the primary home, and purchase the second combining the equity with cash. So, we went into a bank, explained our plans to an assistant branch manager and a mortgage loan officer, and they suggested we apply for HELOAN. The application has been in processing for 4 weeks: the bank pulled credit reports, obtained appraisals, even hired closing law firm. A week ago I got a request from underwriters to explain the purpose of the loan. I went back to the branch and with the "help" of the loan officer and the manager drafted a note stating the purpose (which was purchasing another home). A few days later I received a phone call from underwriters saying that the application was denied because "the bank is not interested in giving us this loan to purchase another home." The underwriter said that we can apply fresh for another type of loan (i.e. mortgage or bridge) if we wanted. The proposed closing for another house is in 5 days. The seller (and agents) are aware of the loan outcome.

    I feel that we were misguided by the bank officers. There was definitely no need to process the application for 4 weeks, all the way up to closing only to tell us at the very end that the bank does not like the purpose, which the bank knew from day 1. So, here are the questions. Suppose a seller grants an extension and allows us another shot at a loan.

    1) Is it against the law to use home equity to purchase another property? Are we (unknowingly) trying to break any rules? The loan officer says that underwriters were unhappy because they realized the bank would make too little profit. Is that a good reason for loan denial? Or do they even need to provide a reason for denial? They were also concerned that we will move into another home, sell the 1-st one right away and pay off the loan. This is also very misleading, because our actions were largely motivated by attempt to invest large amount of cash in rapidly growing real estate, and there were no plans to move right away.
    2) Is it wise in this situation to apply for a HELOAN with another lender? I think it is not, because any lender will see a record of denied HELOAN. Will a lender be able to tell me upfront if they will grant a HELOAN for our purpose (despite a denial)?
    3) Is there any way to appeal the decision? (or consider the loan re-evaluated)

    Thanks.
  • 08-04-2018, 10:01 PM
    adjusterjack
    Re: Buying Another Home by Using Home Equity on the Primary
    Quote:

    Is it against the law to use home equity to purchase another property?
    No.

    Quote:

    Are we (unknowingly) trying to break any rules?
    The bank's rules, obviously.

    Quote:

    The loan officer says that underwriters were unhappy because they realized the bank would make too little profit. Is that a good reason for loan denial? Or do they even need to provide a reason for denial?
    They probably need a reason under FCRA but making too little profit can certainly be a reason.

    Quote:

    They were also concerned that we will move into another home, sell the 1-st one right away and pay off the loan.
    That's right. Money grubbing vultures. Same thing happened to me. I called a couple of banks about a home loan against my house (which is free and clear) so I could buy another house, then sell mine and pay off the loan. Got the same reaction, turned down before I even got started.

    Quote:

    Is it wise in this situation to apply for a HELOAN with another lender? I think it is not, because any lender will see a record of denied HELOAN. Will a lender be able to tell me upfront if they will grant a HELOAN for our purpose (despite a denial)?
    I imagine you would get the same results if you ask for a HELOAN and reveal your purpose up front. Maybe not so if you ask for a regular mortgage loan with a prepayment penalty.

    Quote:

    Is there any way to appeal the decision? (or consider the loan re-evaluated)
    No.

    The lender has no obligation to lend you money unless it with their terms. The "no" is final.

    Quote:

    The proposed closing for another house is in 5 days. The seller (and agents) are aware of the loan outcome.
    Being "aware" means nothing.

    It's what the seller wants to do if you can't come up with the purchase price that counts.
  • 08-05-2018, 04:38 AM
    budwad
    Re: Buying Another Home by Using Home Equity on the Primary
    The bank said you can apply for a mortgage with higher interest rates on the new house. Why don't you consider doing that. Take out a 30 mortgage and pay it down in say 15 or 10 years. Just make sure you use a lender that has no pre-payment penalty.

    You can always apply for another equity loan in the future and use that money to pay down the mortgage.
  • 08-05-2018, 05:14 PM
    Who'sThatGuy
    Re: Buying Another Home by Using Home Equity on the Primary
    Why not apply for a HELOC, use that towards the down payment and lock the rate in that you feel is right?
  • 08-05-2018, 08:48 PM
    ilya980
    Re: Buying Another Home by Using Home Equity on the Primary
    Quote:

    Quoting budwad
    View Post
    The bank said you can apply for a mortgage with higher interest rates on the new house. Why don't you consider doing that. Take out a 30 mortgage and pay it down in say 15 or 10 years. Just make sure you use a lender that has no pre-payment penalty.

    You can always apply for another equity loan in the future and use that money to pay down the mortgage.

    If the seller agrees to an extension, I agree, there are various more expensive options to make this purchase (conventional 30, 5/1 ARM, etc.). HELOAN/HELOCs are cheaper, because there are no closing costs and also cheaper closing on the house. The problem is that this bank offered very good rate on HELOAN when we applied and denied the loan 4 weeks later stating they didn't like the purpose, though they knew the purpose from day 1. If they were unhappy with their own terms for this loan and our purpose, they should have said it at the beginning. Anyway, I don't want to blame the bank here. I posted because I knew nothing about possible restrictions on HELOAN/HELOC until a phone call from underwriters. I've heard of many people buying other houses, boats, and other stuff with HELOANs and didn't expect to run into this problem.

    Your suggestion works better if we were to move right away and sell the primary (and there would be no or little prepayment penalty), but we aren't.

    Quote:

    Quoting Who'sThatGuy
    View Post
    Why not apply for a HELOC, use that towards the down payment and lock the rate in that you feel is right?

    I thought that is what we have just been denied. I think HELOC just allows to draw money multiple times against the primary residence, and HELOAN is just one time lump sum payment at the beginning. Isn't it? Why would a lender who says "I will not give you the HELOAN to buy another house" would approve HELOC instead? At this point, why would any lender approve a HELOAN or HELOC seeing one just denied?

    Quote:

    Quoting adjusterjack
    View Post


    That's right. Money grubbing vultures. Same thing happened to me. I called a couple of banks about a home loan against my house (which is free and clear) so I could buy another house, then sell mine and pay off the loan. Got the same reaction, turned down before I even got started.

    I wish I was turned down before we started. Now we have a bunch of credit pulls, useless appraisal, tons of wasted time and frustration for ourselves, the seller, everyone involved, and a stupid denial letter.

    Does anyone have a recommendation for an experienced MA attorney in pursuing appeals to the mortgage review board (preferably in Boston) or litigations based on violations of FCRA or MGL 183.64 (discrimination based on property location)?

    Would greatly appreciate.

    Thanks.
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