So, here is my situation.... I have about $28,000 in debt spread across several loans bleeding me dry almost every month (almost $1300 a month, and that's not even including things like water, power and cable). I have already applied for a HEL and will find out tomorrow if I am approved. The house is paid off and almost all of the loan I applied for ($35,000) is going towards debt consolidation and the rest is going to be applied to repairing a few minor issues with the house. The house, as of the last time it was appraised (YEARS ago) is listed at around $95,000. The house/property is probably worth at least $30,000 more than that but I don't want to get it re-appraised in fear of having to pay more property tax.
Im planning on a 10 year loan which, if I get the interest rate Im expecting, would drop my payments by almost $1000 a month. My question is, when we applied for the loan, we hammered it home that this was primarily for debt consolidation.... When someone behind the scenes see's this application, are they taking into account that I am not looking to add MORE debt, but to decrease my debt, or do they just look at the fact that I have several loans and am paying out the ass and there is no way I could afford another loan regardless if I am using my house as collateral?
To sum up:
House is paid off
Asking for $35,000
House is worth ~ $95,000 without an appraisal since at least 2006 (many upgrades since then)
Most of the funds are going towards consolidating the debt I owe
The remainder (aprox. $6000) is going towards home improvement
Signing as a joint account holder with my brother
Can you think of ANY reason why they would deny this loan? As far as I see it, if I cant make a payment of less than $300/Month (when Im currently covering $1300/month which will virtually disappear over night if I'm approved) and they only invested aprox. 1/3 the value of the home and would get it free and clear if I defaulted, I don't see why they wouldn't jump at the chance.... but banks are weird like that these days.
Anyone have any insight as to how this might turn out?
First, I would be shocked if they did not require a new appraisal and le policy. The new appraisal does not effect the appraisal at your taxing district...they don't see it.
If your credit is good (700+) I see no reason this loan shouldn't fly through.
dont u have a redrawal account?
IIRC, the rule in Texas is that you're allowed to borrow up to 80% of your equity and you're not going anywhere near that figure. So you should be in good shape.
Like CC said, I would expect the bank to require a new appraisal. I'd also expect the bank to ask you who your other creditors are and that they would be the ones to send the money directly to them to pay off those accounts instead of just forking over the full $35k to you and assuming that you'll use it how you told them you would.
Since the value of the loan is so much less than the total lien (existing mortgage) on the house it would seem to be a slam dunk that you will get the loan, simply because they are almost certain to get their money back if you default.
$300/month is very doable, unless your income is really low relative to all your debt service, even if you didn't use the money to pay of other debt.
Were I you, I would simply keep paying the $1300 per month anyway on the equity loan. Nothing says you have to go the entire 10 year period, and since you are movign a lot of the payment to principal instead of interest it would be a good way to go.
IF
You have about a years worth of cash saved up first.
If not, then split the $1300 cash flow between cash savings and extra payments on the equity loan until you get a years worth of cash.
Having the cash will let you use cash instead of high interest credit if something pops up which things always seem to do.
If he has decent credit then interest on the loan will be less than 3%. Considering the interest is deductible he would be nuts to prepay the loan.
Suze Orman says never do a HELOC. But then again she also says have an 8+ month security blanket (who has that). Seems like an ok proposition to remove all of your debt. But I would definitely try and pay the HELOC loan asap, regardless of whether or not the interest is deductible, since your house is taken as collateral (very risky). But I guess you could do the same by just paying off your loans and not getting the HELOC.
Can you not afford the $1300/month? Sounds like even though it's a lot of cash flow hit, it would pay down debt rather quickly.
He's not doing a HELOC, he's doing a complete new refi.
And yeah, IMHO it's stupid to pay off a 2.5% tax deductible loan in this market. Thats a straight push with inflation. Take the extra money and put it in a good mutual fund instead and make 6%+.
Thanks for the info everyone.
FYI, I was approved. Payments are about what I was expecting. A little over $300. I'm happy.
I'm a former loan officer and currently work with a large bank and default loans.
You are pretty much guaranteed to get this loan for the fact you currently do not have a 1st or a 2nd motgage on the property. HELOC's and HELOANS are usually near impossible to qualify for these days because of the risk involved for the junior lien holders. W/ the rate people are going into foreclosure in this day and age, they have no choice to be picky because if the 1st mortgage forecloses they will not receive a dime back from the sale of the home unless the first or any other liens ahead of their position is paid first.
And you are't going to have much of a choice but to get some form of an appraisal. They may do a desktop review at the least, or send out for a drive by BPO (broker price opinion), but they have to obtain the loan to value ratio based on the appraisal.
*edit* congrats, just saw you got approved.
True. I didn't really mull over the tax implications.
It depends on whether one places a value in being debt free, with the security that provides.
No offense, but bear in mind that not everybody has passive investments that could provide an income should they lose a job or get sick. Not having loan payments tied to one's shelter in such a case is a very strong protection against being homeless in such a case.
Good advise…Especially if you live in a non-recourse mortgage walk away state…
People who remain gainfully employed & do not buy expensive houses and cars…
Meh. I've got a HELOC. I like it. I've got a $0 balance on it at the moment, but it's there in case I ever need to borrow some money short term. Instead of having to go through a time consuming loan approval process I can just walk into the bank and say "give me money" and I'll have a check on the spot.
Granted you can get yourself into trouble with one if you can't handle credit responsibly, so Orman's advice is probably appropriate for the majority of her audience.
And she probably thinks people are going to buy shoes with it.
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