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New Contributor
LALALISA
Posts: 73
Registered: ‎05-21-2012

Home Equity Line of Credit question....

My husband and I currently have a home and there is NO mortgage on it.  The deed was transferred into our name from my inlaws. We want to build a new home on acreage in the next year.  We are looking at possibly taking out a HELOC on our current home to use towards any down payment on the land or new home/land (found a lender who finances both together and they want 10% down) just in case we haven't saved up enough money by the time it's built/closed. We also plan to sell the current home to pay off any LOC we used and keep the difference.  My questions are:

 

1.  Is it wise to do a HELOC for down payment towards another home, especially a new one?

 

2.  Do they use an appraiser for our current home for the HELOC or go by what the homes are selling for in our area or the appraisal district?

 

3.  If we do get a HELOC (not using it until closing on the new property), do we get this before or after we are pre-approved for our construction loan? Our CC UTI is excellent btw. 

 

My husbands FICO's are in the 760's and mine are in my sig below.

 

Thank you in advance!

 

 

 


Starting Score: Jan 2011: 517; March 2012: 620
Current Score: Ex 681 FairIsaac V2; TU 690 Classic04; Eq 642 Beacon5.0-All lender pull 8/13/12
Goal Score: 700


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Valued Contributor
JM-AM
Posts: 3,303
Registered: ‎06-09-2010

Re: Home Equity Line of Credit question....


LALALISA wrote:

My husband and I currently have a home and there is NO mortgage on it.  The deed was transferred into our name from my inlaws. We want to build a new home on acreage in the next year.  We are looking at possibly taking out a HELOC on our current home to use towards any down payment on the land or new home/land (found a lender who finances both together and they want 10% down) just in case we haven't saved up enough money by the time it's built/closed. We also plan to sell the current home to pay off any LOC we used and keep the difference.  My questions are:

 

1.  Is it wise to do a HELOC for down payment towards another home, especially a new one? This is not always a wise thing to do, but is a choice you would make.

 

2.  Do they use an appraiser for our current home for the HELOC or go by what the homes are selling for in our area or the appraisal district? It would have to be appraised. Your appraisal should not differentiate too much from other similar homes to yours that were recently sold albeit depending on condition of home etc etc...

 

3.  If we do get a HELOC (not using it until closing on the new property), do we get this before or after we are pre-approved for our construction loan? Our CC UTI is excellent btw. This depends on different factors, how it impacts your credit scores, how it impacts your DTI, what  type of loan you are seeking, just to name a few...

 

My husbands FICO's are in the 760's and mine are in my sig below.

 

Thank you in advance!

 

 

 



In my opinion if you plan on selling your home anyway I would make every attempt to sell the home and use the proceeds needed to pay for DP and closing and whatever other money needed for your new construction loan. I see no benefit in paying interest on a HELOC to purchase another home. 

Good Luck
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New Contributor
LALALISA
Posts: 73
Registered: ‎05-21-2012

Re: Home Equity Line of Credit question....

Thank you JM-AM!


Starting Score: Jan 2011: 517; March 2012: 620
Current Score: Ex 681 FairIsaac V2; TU 690 Classic04; Eq 642 Beacon5.0-All lender pull 8/13/12
Goal Score: 700


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webhopper
Posts: 7,230
Registered: ‎09-16-2011

Re: Home Equity Line of Credit question....

If you take out a HELOC on your home and borrow the full amount of the HELOC, then it will report on your credit as a maxed out credit card.  This can be problematic because it will make your scores drop. I would fully investigate the effects that the HELOC will have on your FICOs before you pull the trigger.


Starting Score: 08/29/2011 TU 671 EQ 674
Current Score: TU 754 EQ 694 EX 697
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New Contributor
LALALISA
Posts: 73
Registered: ‎05-21-2012

Re: Home Equity Line of Credit question....

Thank you for the info!

Starting Score: Jan 2011: 517; March 2012: 620
Current Score: Ex 681 FairIsaac V2; TU 690 Classic04; Eq 642 Beacon5.0-All lender pull 8/13/12
Goal Score: 700


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Valued Contributor
Jazzzy
Posts: 2,646
Registered: ‎07-29-2009

Re: Home Equity Line of Credit question....


webhopper wrote:

If you take out a HELOC on your home and borrow the full amount of the HELOC, then it will report on your credit as a maxed out credit card.  This can be problematic because it will make your scores drop. I would fully investigate the effects that the HELOC will have on your FICOs before you pull the trigger.


How it reports will depend upon the size of the HELOC. Large HELOCs report the same as installment loans. Smaller HELOCs report as revolving credit.

 

Our allowable HELOC amount is close to $160k and it reports as an installment loan.

 

Also, we didn't have to have an appraisal because we didn't want to borrow anywhere near the maximum value, and there is no mortgage. The bank used the county's value for tax assessment purposes to set the property value...so we didn't need an appraisal. If we had wanted to borrow more, then we likely would have had to have an appraisal.

Moderator
webhopper
Posts: 7,230
Registered: ‎09-16-2011

Re: Home Equity Line of Credit question....

Good info jazzzy!

Starting Score: 08/29/2011 TU 671 EQ 674
Current Score: TU 754 EQ 694 EX 697
Wallet: NFCU Visa Sig 25k, Amex Lowes 22k, NavCheck 15k, Amex PRG, Amex Zync, Discover It 13.5k, Amazon Visa 5k
Platinum Spade Garden Club Member: App Free since 1/1/13. No more apps til who knows when?
MyFICO Fitness Goal: 800s Club!



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New Contributor
LALALISA
Posts: 73
Registered: ‎05-21-2012

Re: Home Equity Line of Credit question....

@Jazzzy.....Thanks for the information.  We only plan to take out what we need...nothing more and definitely no where near the maximum amount.  I'm hoping that if we do decide to do the HELOC, they'll use the county's value too so we don't have to pay for an appraisal.  Thanks again!


Starting Score: Jan 2011: 517; March 2012: 620
Current Score: Ex 681 FairIsaac V2; TU 690 Classic04; Eq 642 Beacon5.0-All lender pull 8/13/12
Goal Score: 700


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New Member
bartprequalifies
Posts: 6
Registered: ‎07-24-2012

Re: Home Equity Line of Credit question....

A Heloc is usually an adjustable rate mortgage that will adjust to higher rates (short term money costs more than long term money). Have you considered taking out a cashout refinance (possible up to up to 80% of the value of the home if it is you primary) rather than a HELOC. With your husband's scores, you should be able to get a fixed rate between 3.5% - 4.125% rather than paying an adjustable rate on a HELOC. Plus the guidelines and overlays for a cashout refinance will be less stringent than a HELOC.


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