Protecting primary residence in SBA underwriting

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by a searcher from Emory University - Goizueta Business School
in Boston, MA, USA

3h ago

Protecting primary residence in SBA underwriting

Hi all, I haven't started a loan process yet, but I'm trying to understand how banks actually apply the primary residence lien rules in practice in SBA loans. Two specific situations: 1. House already in an irrevocable trust before the SBA process started: How did underwriting treat it? Did the bank still require a lien, ask for trust documents, or push back on the structure at all? 2. Home equity very close to the 25% threshold, depending on appraisal value: The SOP says property with less than 25% equity of fair market value isn't *required* as collateral, but I'm trying to understand whether banks take the lien anyway, and whether they ordered a full appraisal or used an approximate valuation I know each bank/deal/individual is different, but appreciate any first-hand experience.

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reply by a lender 1h ago
from Eastern Illinois University in 900 E Diehl Rd, Naperville, IL 60563, USA

Great questions. I would be happy to get on a call to walk through your situation at any time. But here are the general answers to your questions. The only way I have seen a lender not be required to take a primary residence as additional collateral when there is a collateral shortfall on the loan and the property has 25% or more equity in it is if it is in an irrevocable trust. If it is an other sort of personal trust or business entity, we have still seen the SBA require the lenders to take it. If you have total mortgage debt, including the balance and availability on a home equity loan, at a point where the remaining equity is less than 25% of the value, then generally speaking most lenders will not take the home as additional collateral. There are some SBA lenders that like to take the home even if the equity is not there if you have a lot of unsecured exposure, but most of the lenders we work with do not want to take the home unless there is sufficient equity to do so. As for determining value, most lenders start with the value of your personal financial statement. They then go online and check resources like Zillow or Realtor.com and see what those websites state the value of your home to be. If it is the same or less than what you have listed on your personal financial statement and you have less than 25% equity, most just will not take the home. If the values found on line are higher or your personal financial statement says you have 25% or more equity regardless of the value on the websites, they will have to order an appraisal. That appraisal will determine how much equity is in the home. I have found just about all lenders do it this way or some version very close. We have seen some lenders who have ordered the appraisal no matter what on the home, but that is less common. Again, I would be happy to have a call to discuss any of this and your particular situation. You can reach me here or directly at redacted Good luck with your search.