How a Mission Viejo Business Owner Accessed Home Equity Without Replacing His First Mortgage
A Mission Viejo business owner needed access to cash, but replacing his existing mortgage didn’t make sense. His first mortgage carried an interest rate below 6%, and a cash-out refinance would have replaced that loan.
A traditional income-documentation approach presented another challenge. Business write-offs left little or no qualifying income on his tax returns. Based on that income, he wasn’t able to qualify for the conventional HELOC option we explored.
We looked at another possibility: a bank-statement HELOC.
Looking beyond tax-return income
Some bank-statement HELOC programs allow self-employed borrowers to document income using 12 or 24 months of bank statements. The lender reviews eligible deposits and applies an expense factor to estimate qualifying income.
For example, a business averaging $50,000 in eligible monthly deposits with a 50% expense factor would produce $25,000 in monthly income before any other applicable adjustments. That illustration assumes full business ownership; it is not this borrower’s actual income. Expense factors, ownership adjustments and program requirements vary.
This approach gave us another way to evaluate his business cash flow when tax-return income alone wasn’t enough.
About $200,000 in equity access, with the first mortgage intact
A HELOC is a separate loan secured by the home. In this case, it allowed the borrower to access equity without replacing his first mortgage.
The approved line was about $200,000, and the transaction closed in less than two weeks.
Keeping the first mortgage does not automatically make a HELOC the least expensive option. The new payment, rate structure, fees and repayment terms still need to be compared with the alternatives.
The right option depends on your situation
Bank-statement financing does not eliminate underwriting. Lenders still evaluate credit, existing debts, available equity, business history and eligible deposits. Many HELOCs have variable rates, and payments can change as rates move or the line enters repayment.
For a self-employed homeowner whose write-offs make traditional qualification difficult, a bank-statement option may be worth exploring.
If you own a business in Mission Viejo, Rancho Santa Margarita, Trabuco Canyon or nearby, let’s compare your home-equity options before deciding whether to replace your first mortgage.
Tyler Thrush | Maltese Mortgage
Call or text 949-547-6138
Personal NMLS #304934 | Company NMLS #1275835
Educational purposes only. This case describes one borrower’s transaction and is not a rate quote, commitment to lend or guarantee of approval or closing time. Rates, fees, eligibility and program requirements vary and are subject to underwriting.
