Full Webinar: Home Equity Line of Credit (HELOC) Source of Funds Considerations for EB-5 Investors
Sam:
Hi, everyone. Sam Silverman, managing partner of EB5AN. Thank you for taking time to join us for today’s webinar. Today we’re going to be chatting about home equity line of credit, or HELOC, and how that fits into an EB-5 source of funds application for an EB-5 investment. Many, many of our EB-5 investors use a home equity line of credit, or HELOC, loan to fund all of or a portion of their EB-5 investment. It’s probably the number one most common source of funds for EB-5. So it’s really important to understand what documents are needed if you want to use a HELOC to fund part of your investment and then what potential problems and risks you need to be aware of to make sure you don’t have any approval issues from USCIS.
First, a little bit about EB5AN. We’re a national EB-5 regional center operator and investment fund. Our regional centers cover the entire United States. We’ve worked with thousands of EB-5 investors. One thing that sets us apart from any of the other EB-5 regional center companies is a relentless focus on investment transparency. We’re the only major EB-5 operator that provides all the financial statements for the project and makes them available to investors. We’ve also published hundreds of videos and articles on our website about due diligence, best practices, and how to properly evaluate potential EB-5 project investments.
As I mentioned earlier, I’m Sam Silverman, one of the two managing partners of EB5AN, and a little more about my background and bio is there on the left-hand side, and my partner Mike there on the right side.
This is a map of all of our regional centers that cover the entire continental United States, and another map showing where many of our investors have come from. People of many nationalities and backgrounds have consistently found value in our investment approach, and we’ve worked with over 2,000 investors from more than 60 different countries around the world. Our projects and our diligence materials have been featured in many leading publications in the United States. Some of them are listed here on this slide.
And now we’ll shift over to the main topic of today’s webinar, HELOC loans, and introduce our guest panelist, Anahita George. Anahita is a top EB-5 immigration attorney who’s been practicing in the space for over 10 years at this point. She’s worked with almost 2,000 EB-5 investors. And I’ll let her jump in and share a little bit about her background, bio, introduce herself, and talk about HELOCs and why it’s really important to get the documentation right.
Anahita:
Thanks, Sam. Thanks for having me today. Hi, everyone. My name’s Anahita George. I am the founding partner of George & Marzialo, a law firm based out of Seattle, Washington. We are exclusive EB-5 attorneys. We would say 98% of our practice is EB-5. As Sam mentioned, we’ve been doing this for over 10 years and have a 100% track record.
For my background, personally, I was an accounting major in school that practiced tax law for several years before I started doing EB-5. My background is in forensic accounting and tax, which helps us very much make a very successful EB-5 petition present a very comprehensive story to USCIS.
We [inaudible 00:40:55] have been doing it for over 10 years and work with multiple regional centers. We pride ourselves on being very independent from the regional centers. We never represent a regional center just so that our duties and our responsibility and our objective is only in favor of the EB-5 investor. We never, ever do any work for the regional center so we can be open, honest, and transparent to our clients and our customers about their source of funds without having to worry about the other client that would create a conflict of interest—that would be the regional center in this case.
Sam:
Anahita, could you share a little bit of additional information about what your clientele looks like today in terms of investors who are getting a HELOC loan from a U.S. property specifically?
Anahita:
Sure, sure. So I would say about 90% of our clients currently are H-1B visa holders that are in the U.S., that have been here for a while, that own homes.
As we’re all aware, COVID caused a substantial increase in value of homes in the United States, and that has caused a lot of people to tap into their home equity line of credit to fund the EB-5. Our numbers show that over 70% of our clients are relying on home equity line of credits to fund their EB-5 investment. The only source that is as popular as HELOC is restricted stock units that are awarded by the tech companies, but that is the second number. So number one is HELOC. People tend to rely a lot on HELOC to tap into their home equity to fund the EB-5.
And with the increase in interest rate, we have seen this to be a heavy financial burden on the investors, and so they tend to shop around quite a bit for rates, and that rate shopping has led them to make several mistakes that we will be talking about, and hopefully this webinar will help clients avoid those mistakes before they go down the path of rate shopping.
Sam:
Great, great. Thank you. All right, so let’s jump into the main topic for today and talk about HELOC loans. So before we talk about the loans, let’s start with some background on homeownership acquisition and start with that part of the equation and then shift over to the mechanics of the actual loan.
Anahita:
Sure. So like I mentioned, COVID caused an increase in home values that is now resulting in EB-5 investors tapping into those homes. What is the government looking for when you are relying on a home equity line of credit?
In the United States, when you’re purchasing a home, there are two components to purchase. One, there’s a down payment. Usually, the down payment is close to 20% of the value of the home. And then the continuing component is the mortgage that you fund using your regular income. So for example, if a house purchase price is $500,000, 20% of that would be $100,000 that you would be putting an upfront down payment on, and the rest of the $400,000 would be funded through a 30-year mortgage with a bank when you made the initial purchase.
When you’re taking out a HELOC, say you purchased the home in 2019, and the value of that was $500,000 at the time. Today, that property could be worth close to a million dollars, so you have a gain of $500,000. How do you gain from that increase in value? The way to gain is to take out a home equity line of credit. Bank would appraise your property to first verify if you have that much gain, and then they’d allow you to pull that gain out without selling the asset, and then you’d be making regular payments to pay that debt down. So that is what a home equity line of credit is, tapping into that unrealized gain with a bank loan and then investing that amount in an EB-5 investment vehicle.
So I think if we go on to the next slide, we can talk about the components of the home purchase and what it looks like and then move on to what the HELOC looks like.
So here what we have is a sample closing disclosure. What is a closing disclosure? A closing disclosure is a document that’s provided by your lender, the lender who’s going to lend you that balance of $400,000 to fund the purchase. In our previous example, we talked about the $500,000 purchase price where the investor was making a $100,000 down payment.
Here we have a sample from the Consumer Financial Protection Bureau’s website. As you can see in this sheet, the initial purchase price of the home is provided on page 2. If you go to page 3, you will notice that it talks about the down payment funds that are due from the borrower are about $18,000. It also says that the deposit that the borrower’s made is $10,000, and then the cash at the time of closing is $14,147.
Let’s go back to what USCIS is looking for from us attorneys. USCIS looks at these numbers and says, “Hey, Anahita, tell us where the client got the $10,000 from to make that purchase and subsequently show us where the $14,147 came from to make this purchase.” So they want an accounting for $24,147.
When we’re building out the source of funds, we go through seven years of your bank records. If this purchase was made in 2019, we analyze your bank statements from 2017 to 2019. We show the government all the salary receipts you’ve been getting in and the savings you’ve made. From that savings, we’ll be able to show the $10,000 wire that you’ve sent to the escrow and the $14,000 wire that you sent at the time of closing.
What the government is looking for in your bank statement is a spike right before the purchase. They do not want to see you getting money from a third party or from any other source. If you’re getting money from any other source, you need to document what that source is. But their sole focus is on that down payment, on that $10,000, which probably is paid three months before closing, and on the $14,000, which is made on the day of closing. So that is your total down payment that the government is looking into the accounting for.
In addition to that, you funded the rest of the purchase of the mortgage. It could be a $300,000 mortgage. What is the government now looking for?
As we talked about, when we do the down payment accounting, we’re looking at 2017 to 2019 records. When we talk about mortgage payments, we’re looking at records from 2019 to 2024. We’re going through your W-2s, your tax returns, and your bank statements and showing the government all the salaries that you’ve received, and subsequently we’re showing all the mortgage payments you’ve made between 2019 and 2024. What you’ve now done is shown to the government that all the down payment and all the mortgage payments that you’ve made during this tenure were legally sourced from your employment income.
The question of refinance comes up quite a bit. When the market crashed in 2020 and 2021, a lot of our clients ended up refinancing their debts. What does the government want to look at when they’re refinancing? Ideally, they’re not looking for the same closing disclosure. What they want us to show is the continuity of mortgage payments, that you didn’t have a lapse in the payments, and if you did have a lapse, you actually had applied for an exemption of payment, and then all that debt was eventually cleared or you resumed payment of that mortgage. So they’re not looking for closing disclosure at the time of refinance, but they want to keep seeing that you’re regularly getting salary and you’re regularly making those income as mortgage payments. And that is how you’ve now proven that the entire asset, that home of yours that you’re going to tap into the HELOC for, has been sourced using legitimate money.
Any questions, Sam?
Sam:
No, I think that makes sense. Let’s talk about just general best practices, things to look for when you’re in the process of looking for a HELOC provider, and what to make sure of before you decide on which bank or which lender.
Anahita:
Right, absolutely. Couple of things. When we’re doing our initial consultations, we’re trying to understand from the client what assets are going to tap in to fund the EB-5, and again, like I said, HELOC comes up over and over again. And the initial set of questions that we ask is “When did you make the purchase? Did you take money from friends and family to make the purchase? How have you been funding the mortgage payments?” These three questions are very important.
Oftentimes, I get questions from clients saying, “What if I take money from A, B, C, pay off this entire house, and then take a HELOC?” Well, that does not work, because if you’re taking money from A, B, C to pay off that entire loan, that mortgage, the government wants to know where A, B, C got those funds from and what’s the nature of the transaction between yourself and A, B, C. Is that a loan? Is that a gift? So no, you’re not able to just pay off the entire asset and then tap into the HELOC because you need to source the entire asset.
Second question that we ask is “Have you gotten the property appraised?” because Zillow may tell you that it’s worth a million dollars, but when you go through an appraisal process, it may just be worth $900,000. When the interest rates are higher, the property valuation is lower, so it may not match Zillow. So again, we tell the clients to go to a lender, make sure that the appraisal is in line with what they need for EB-5.
The most important point that we want to talk about is the licensed financial institution. This is extremely important and is often neglected by a lot of clients and immigration attorneys. What we’ve seen over and over again is we’ve seen a request for evidence from USCIS. Why is that request for evidence being triggered? If you are to reference form I-526E question 13 on page 9, the form very specifically says, “If you are tapping into a home equity line of credit or a loan, we need source of funds documentation for the donor or the lender if that institution is other than a bank.” Why is that important? When we advise our clients to take out HELOCs, we want to make sure they’re taking out HELOCs from a bank. If the institution has the name bank or credit union at the end of it, that institution works well for EB-5 source of funds.
Here’s the question that we just talked about. USCIS is very clear. They want to see documentation from the donor or the lender if it is not a bank. What we’ve seen with the increase in interest rates is we’ve seen that the online lenders, such as AmeriSave, such as Mr. Cooper, such as Vista Equity Partners, give out more money at 100 basis points savings. So if the bank is at 10%, Vista is going to be at 9%, and they’re going to give you a little bit more money on that home equity line of credit.
Why is that a problem? Well, let’s just take Vista for an example. Vista is not a bank. It doesn’t have bank in its name. What we’ve seen USCIS do is come out with requests for evidence asking for source of funds for Vista, provide Vista’s bank statements, provide Vista’s tax returns, tell us how Vista got this money to lend you the money. None of that is possible. Vista is not going to give out their source of funds, their tax return document, to the client. So the best practice in this case is to make sure that the client is sticking to a bank or a credit union where they’re initially tapping into the home equity line of credit.
USCIS is not consistent in their adjudication. We’ve seen some clients get by where it’s not a bank and they’ve not paid attention, but we’ve also seen cases where they’ve come back and said, “Considering that this entity is not a bank, we’d like to see the documentation of the other side.” To avoid these problems to begin with, please just go to a bank or a credit union, borrow from something that’s FDIC-insured or NCUA-insured, and you will absolutely be fine with the source of funds. Do not take any chances with these online lenders.
Subsequently, you’re able to refinance and then pay down that debt with a cheaper interest rate loan. That’s absolutely okay, because if you remember what I said about in part one is that the government always is looking for continuity of payment. If there was an RFE three years down the line, two years down the line, asking for source of funds of repayment, you would still have accounting for all the payments you’ve made. You wouldn’t have to talk about the refinance because your initial purchase was done with a bank.
Any questions, Sam?
Sam:
No, I think that’s good for that. Let’s talk just what happens if you don’t follow that advice. What does that path look like if the government evaluates that carefully and says, “No, we’re not going to allow that”?
Anahita:
Yeah, and I think that’s a great question. If the government comes back and says, “We want to see the source of funds for Vista or Mr. Cooper.” One, the private institution is not going to be able to provide those documentation. What does that mean? That means that you’re going to get a 526E denial.
Now, you could take it to the board of appeals. You could adjudicate it. You could appeal it. All of that takes years to sort itself out. And in order to avoid that, we just stick to banking institutions.
The other issue you may have is that not all projects will have a robust EB-5 I-526E denial guaranty. We’ve seen a lot of guaranties that are written in a way that would just state … They’re kind of flimsy. They say, “We will return the money if we can.” That is not promising you to return the money. It just says, “We’ll return it if we can.” Now you’re paying this high interest rate loan, you’re not getting any EB-5 benefits from it, and you’re just stuck with the debt. So you’re not getting that EB-5 money back, and I think this is where we go back to our clients and say, “It’s very important when you’re picking your project and if you’re uncertain about your source of funds to read the refund guaranty carefully.” Just having a refund guaranty that says, “We promise to replace you with another investor” is not good enough.
So again, these points are very important. Make sure it’s a licensed financial institution. Make sure it’s a bank. Just anything that has a bank or credit union works within the United States. Stay away from offshore banks or institutions. So for example, Canada legally allows you to borrow from secondary lenders that are non-banking institutions, and those entities are licensed in Canada. But that source of fund does not work for USCIS, because you not only have to comply with USCIS regs but also local country regulations. And if USCIS says, “We understand it’s legal in Canada, but our requirement is that you document this entity,” that’s not going to happen.
So if it’s an unlicensed lender, they need to show their business registration documents, their tax returns, their bank statements, information about how they’re pooling the money in order to give you the money. And to avoid all of that, we just tell our clients, “Stick to banks and credit unions that are FDIC- and NCUA-insured.” And if you want to take any risk with this, I think you obviously need to go back to the refund guaranty that the regional center is giving you and make sure that it’s a robust one and not just something that says, “We’ll replace you if we can find another investor.”
Sam:
Got it. Okay. That makes a lot of sense. All right, I think that covers pretty much the main topic we wanted to cover today. I think before we wrap up though, Anahita, could you share some more details about how potential investors can get in touch with you and a little overview of what the process looks like once a client’s decided, “Hey, I want a new EB-5, I’m thinking about doing a HELOC, and I want to work with you”? How does that process work, and how do they upload documents, and how long does it take?
Anahita:
Yeah, I think what we tell the clients is you get one free 30-minute consult with us. Make the best of it. Come to us when you’re very close to pulling the trigger on EB-5, so you’re about to file in 30 to 60 days. Come to us before you take out any loans. Come to us before you liquidate any assets, trigger any tax liabilities. You want to talk to us before you do any of that but you’re certain of doing EB-5.
The easiest way to reach out to us is through WhatsApp or through that scheduling link. If you reach out to me through WhatsApp, it’s more likely that I will just route you through the scheduler and say, “Hey, please schedule a call with us.”
And again, the best use of your 30 minutes is if you are ready to go and you just have high-level questions about “Hey, this is what I’m thinking. Can we go through this EB-5 with this source of funds?”
We are a very online-only firm. What we mean by that is we heavily rely on technology such as WhatsApp. We rely on Dropbox. We rely on e-questionnaires in order to interact with our clients. Once the client retains us, we give them access to Dropbox. That Dropbox will have their checklist for adjustment of status, all documents listed on one paper, their checklist for source of funds, all documents listed on one paper, and there will be folders designated for each of these. So for example, if you’re going to put adjustment of status documents, they all go to the adjustment of status folder. Source of funds, all source of funds folder. Immigration forms will have a separate folder.
We will also send you questionnaires and ask you to upload documents to substantiate that everything that you’re telling USCIS today is in line with what you have told USCIS in the past. One of the things that USCIS is looking for is inconsistencies between previous applications and the current application. If you’re an F-1 student, if you’re on L-1, if you’re on E-2, if you’re on H-1B, we need to make sure that what you’ve said in the past to USCIS aligns with what you’re saying now. So we do invest a lot of time in these immigration forms looking at your past data to make sure you’re not triggering any misrepresentation bans.
The entire process end to end for U.S. source of funds takes about two to three weeks. What we want the clients to factor in when they’re reaching out is HELOC on an average takes 45 to 60 days, and now with falling interest rates, that time period could be longer because there’s a longer line for refinances. And with the falling interest rates, we’re also going to get the benefit of better valuation. So HELOC is a great source if you do the math correctly, if you reach out to the right lawyers, and you set it up all properly.
Again, reach out to us using the scheduling link. We get this process done end to end within two to three weeks. We help you schedule the medical. We give you online access to everything. And we’re very, very available to get this thing filed in 21 days.
Sam, anything else you think I could add on?
Sam:
No, I think that pretty much covers it. So anything related to source of funds HELOC questions, please reach out to Anahita. Anything related to potential projects for investment, whether they’re rural with faster processing or urban with normal processing, please reach out to EB5AN, and we’ll be happy to share more details with you.
