HELOC questions

[psyclotr0n]

Hi folks, two quick home quity line of credit questions please:

1) Since part of any credit approval is conventional employment it makes sense to get access to capital with a HELOC prior to retiring (i.e. for downgrading to buy a new place with all cash while keeping the old one to rent out). However, do we want to do it right before to maximize the amount, or can we open it whenever we want and bump up the credit limit later?

2) How much shopping around do we need to do? Or is it a commodity that's the same everywhere? Any advantage to having with the same bank as your mortgage?

3) ok, one last one -- how do we ensure (or can we?) that the bank's assessment of value is as high as possible (maximizing available equity to borrow against)

[themagicman]

Hi folks, two quick home quity line of credit questions please:

1) Since part of any credit approval is conventional employment it makes sense to get access to capital with a HELOC prior to retiring (i.e. for downgrading to buy a new place with all cash while keeping the old one to rent out). However, do we want to do it right before to maximize the amount, or can we open it whenever we want and bump up the credit limit later?

My HELOC will not allow me to bump up the limit later. They said I must go through the application process again. I would imagine most are the same.

2) How much shopping around do we need to do? Or is it a commodity that's the same everywhere? Any advantage to having with the same bank as your mortgage?

I shopped around a decent big and the penfed heloc seemed to be the best. It has a very low rate, zero closing costs, and your rate locks every 5 years with alimited adjusting range. I don't think there is much advantage to having it with the mortgage company but I think there is an advantage to having it at the same place you have your checking account. It can be used for overdraft protection and you are able to access to HELOC money immediately to use for whatever you need

3) ok, one last one -- how do we ensure (or can we?) that the bank's assessment of value is as high as possible (maximizing available equity to borrow against)

I'm not sure on any tips on this one. I would think they would have their own criteria on assessing these properties. I would think most big banks would not sway from this criteria but you might be able to talk a smaller credit union into giving you a larger limit.

[nereo]

1) Since part of any credit approval is conventional employment it makes sense to get access to capital with a HELOC prior to retiring (i.e. for downgrading to buy a new place with all cash while keeping the old one to rent out). However, do we want to do it right before to maximize the amount, or can we open it whenever we want and bump up the credit limit later?

Personally, my HELOC was set at 80% of the equity of my home, and the rate is 0.5% above my mortgage.  As I pay down my mortgage my HELOC limit gets larger (because my equity share increases).  Every 5 years the property is reassessed and the HELOC is adjusted accordingly.
Also, note that while banks may take convensional employment into their decisions for crerit approval, your credit score is not influenced by your income.

2) How much shopping around do we need to do? Or is it a commodity that's the same everywhere? Any advantage to having with the same bank as your mortgage?

I would ask at least 3-4 different places just to see how different they are.  You could get several different offers in one day, so why not?

2)
3) ok, one last one -- how do we ensure (or can we?) that the bank's assessment of value is as high as possible (maximizing available equity to borrow against)

Personally my HELOC was based on the appraised value of our home.  Since the a higher value = more taxes, I'm not sure I want to artifically inflate this number.  It's more effective (personally) to have an increased limit by owning a larger share of my home, which happens every time I make a mortgage payment.

Finally - I'm wondering why you are trying to get such a large HELOC in the first place.  In my experience it's fairly easy to get a HELOC that's worth tens-of-thousands$; do you really need more credit than this?  If so - why?

[Villanelle]

Definitely shop around.  Rates and general terms vary.  Ours has a variable rate which is something like 0.6% right now.  But we can lock in some or all of any balance (up to 5 different locks at any given time) whenever we want.  Someone else might offer us more credit, or a lower rate on the locked portion, or something else, but we liked these terms.  Definitely worth shopping around and asking about different products even from the same company.

If you want to "bump up the limit" you will likely have to reapply, and that could mean losing the favorable terms you have.  We wanted to increase ours when we were paying off our traditional mortgage. (We hoped to be able to pay off the mortgage with the HELOC at .6%.)  However, that product is no longer available to in order to increase the limit, we'd have lost the good deal.  We decided to keep what we had and find another way to pay off the rest of the mortgage.  Our limit is nearly $100k, so it is plenty for just about anything, but still far, far below the amount of equity we have. 

The larger point is that it may not be necessary to max out the HELOC.  For us, nearly 6 figures is more than enough.  IF we need more money than that, the economic shit has really hit the fan and our property value likely will have tanked, meaning the terms would probably be adjusted down anyway.  So if you have a decent amount of equity now (or when you apply), don't worry about maximizing every penny. 

[Shane]

About 10 years ago we used one of the online services to compare HELOC rates and choose a bank. If you do a Google search, you'll find lots of resources to help you compare rates and decide which company is best for you. We used Lendingtree.com and were happy with their service.

The bank we chose gave us a $100K HELOC without even coming to look at our house. At first they said they were going to send an appraiser, but then they called us back and said that the appraiser had done a drive by appraisal, which was kind of funny, because our driveway is 600' long and there's no way anyone could see our home from the public road.

The HELOC was the best I've ever heard of, but it seems unlikely you'll be able to get the same deal we got. The interest rate was fairly low, which is why we chose the bank, but what we didn't expect was that a couple of years after we opened the HELOC, our bank failed during the financial crisis of 2007-2009. We had barely used the line of credit and didn't have an outstanding balance when we read in the news that our bank had been taken over by the federal government, so we weren't that concerned.

One day we got a letter in the mail from the bank where we had our HELOC informing us that they were offering a buyout plan. The letter said the bank was offering a $500 payment to anyone who had a HELOC and was willing to voluntarily close his account. I thought to myself, this has to be a joke. So I called the bank and talked with someone who assured me that even though we had no balance on our HELOC and had only used the account one time, we were eligible for the $500 buyout package. I told the lady, "Okay, sign us up." A few weeks later we got a check in the mail for $500. It was pretty funny to get paid for taking out a loan...

[psyclotr0n]

Finally - I'm wondering why you are trying to get such a large HELOC in the first place.  In my experience it's fairly easy to get a HELOC that's worth tens-of-thousands$; do you really need more credit than this?  If so - why?

As stated: (i.e. for downgrading to buy a new place with all cash while keeping the old one to rent out)

It seems less painful and complex and risky than doing an equity cash-out mortgage or second mortgage on the new place.

Since the a higher value = more taxes, I'm not sure I want to artifically inflate this number.

I wonder if this varies by state; my understanding at least in California is that only transfer/sale or additions/improvements can affect the county-assessed appraisal, but that banks base equity on _current market rate_. Anyone know if that's all true?

[nereo]

Finally - I'm wondering why you are trying to get such a large HELOC in the first place.  In my experience it's fairly easy to get a HELOC that's worth tens-of-thousands$; do you really need more credit than this?  If so - why?

As stated: (i.e. for downgrading to buy a new place with all cash while keeping the old one to rent out)

It seems less painful and complex and risky than doing a reverse cash out mortgage or second mortgage on the new place.

yeah, but this is what leaves me scratching my head.  a HELOC is using the equity from your existing home.  I doubt you'll get a rate that's less than you can get for a mortgage, and by purchasing a second one with a HELOC on your first home just leverages your first home.
If anything it seems more complex with an increased amount of risk and most likely a higher rate to go it that way. 

Strongly recommend finding out about another mortgage and comparing that to your strategy above.

[psyclotr0n]

well, I figured it was a question of borrowing power and timing. I can't count rental income on my primary residence unless I move out first (chicken/egg problem), so this way could free up enough cash to buy a (smaller) place. I suppose the second place/mortgage could be made as if I were buying it as an income property, but the rent from that would be significantly less. Plus my second place might be something very unconventional / hard to mortgage (housing coop of some sort, or building a tiny house, etc)

[aspiringnomad]

Went with PenFed after a fair bit of shopping around. 15 year LOC with 3.75% fixed for 5 years and adjusting again after 10 years. No closing costs.

[Villanelle]

Finally - I'm wondering why you are trying to get such a large HELOC in the first place.  In my experience it's fairly easy to get a HELOC that's worth tens-of-thousands$; do you really need more credit than this?  If so - why?

As stated: (i.e. for downgrading to buy a new place with all cash while keeping the old one to rent out)

It seems less painful and complex and risky than doing an equity cash-out mortgage or second mortgage on the new place.

Since the a higher value = more taxes, I'm not sure I want to artifically inflate this number.

I wonder if this varies by state; my understanding at least in California is that only transfer/sale or additions/improvements can affect the county-assessed appraisal, but that banks base equity on _current market rate_. Anyone know if that's all true?

CA has Prop 13 (I'm not 100% sure on the number, but I think that's correct.)  It limits the amount that your taxes can be increased per year, no matter how much your property value goes up.  So the only way I can think of that a higher appraisal might cause an increase in your taxes would be if you had your taxes adjusted down due to a decrease in value, and now they are back up again. I'm fuzzy on the details, but when we did that after our value dropped #125k and we wanted a corresponding drop in taxes, I think they said something about being able to increase it again if values went up, up to the point it would have been if they allowed annual increase had continued with no drop. 

TL;DR:  It's unlikely to have any effect at all in CA on your property taxes. 

[redcedar]

1. Definitely close on the heloc before you retire. To be conservative, I would say do it before formally notifying your employer of your retirement. Loan closing dates get delayed for a variety of reasons. Company HR departments may provide more information than actually requested. Stuff happens so plan for a fool proof loan process all the way through closing.

2. As others have said, shop around. Local bank, a credit union if you have access to one, and a national and reputable lender should be a good mix. Things that you want to compare are rate, rate change terms, closing costs, any rules for repaying closing costs if the lender pays some or all for you, term, and any requirements like you must keep a bank account open with $x for y months. Be ruthless with your comparisons and don't be shy about asking one to match or beat terms of another bank. No need to be rude but remember that this loan and its terms will last you for years. The people working on the loan will be long gone by the time it ends. You don't owe them anything extra for doing the loan for you.

3. You can make sure that the information that you provide to the bank is clearly written or correctly typed if it is an online application. You can make sure that the lender provides the same correct information to the appraiser.  You can verify it with the appraiser when they come to your house. That is it for the big and easy things that you can do. Appraisers do not like hovering chatty homeowners so I don't recommend that you try that. The appraiser will rarely give value to upgrades as you do so expect that. The appraiser won't care that you believe that your mohagany cabinets are better than your neighbors since they provide they same open and close and hold your dishes utility as other cabinets.

[cchrissyy]

My credit union said they can't adjust the limit due  more equity from rising home values or paid down 1st mortgage, rather, I would have to do a full re-application and request the higher limit in that process.

So, I'd put this on the to-do list for close to retirement. Doesn't need to be last minute, but say, a year before you expect to stop working.