a few quick questions
Is it better to apply in person? I assume I can do it on line, but will it be processed faster?
Is it easier to have an approval if the house has already been paid off? or can I use a house that already has a mortgage on it? or does it make any difference?
thanks
I don’t know if it’s better to apply in person or online. If you are using a local bank with whom you have a relationship then it might be better to apply in person.
If the home has a mortgage or is paid off only makes a difference in the amount of the LOC you can get. Most will only allow you to borrow 75%-80% of the value of the home, minus the outstanding mortgage. So if your home appraises for $400,000 but you still owe $100,000 on it, then the available loan would be $200,000. (400,000 x 75% - $100,000).
Look for banks that don’t charge a lot of fees. My HELOC is with State Farm Bank, and they paid all fees and closing costs. You can apply online at statefarm.com or at a local agent’s office.
The only HELOC I have applied for is at a local bank. They promised NO fees at all and so far have been true to their word—no appraisal, no closing costs nor annual fee. We have never drawn on the HELOC but have it “just in case.”
We mainly got it because H was retiring in 2012 and we thought we might need the ability to have extra cash and NO fees of charges at all.
I agree that if you still owe on your mortgage, it would reduce the max HELOC you could draw on.
Most HELOCs will have a 10 yr term to draw and then 20 or 10 yr term to repay. Some will require a minimum amount to be withdrawn at signing or within a certain period of time. Real all fine print!
Yes, agree that reading fine print is key. Also be sure there’s no prepayment penalty. I’m sure our bank is unhappy with us as they keep us on th books but we have not used the HELIC in over 6+ years we’ve had it.
I think we (and then I, after the divorce) had to go in person to apply for the HELOC. There might have been fees but they didn’t add up to much. No prepayment penalty and no requirement to borrow a certain amount.
Keep in mind while there may be no fees there are still costs. There is a hit to your credit rating and that may impact other loans down the line. In addition many insurance companies have charges built in based on if the home has loans. One carrier in particular gives a credit for no loans, flat pricing if one loan, and then crazy charges for more than one loan. I routinely see people with a mortgage and a heloc and those people’s insurance premiums are sometimes close to double those with no loan.
Thank you. I probably should elaborate, I am aware of the other issues as I received a lot of help from this forum and had read other people’s posts. Hence my questions are really the one I posted.
I recently talked to a bank and asked for more questions, at the end, the person suggested that I apply through him (i.e. in person), as he could follow through etc… But I am just not sure on whether it makes any difference for me.
I had initially considered using a house that has a mortgage on it, but then in a separate reading I found out that if a house were foreclosed, and if it were bought back by the bank, the second bank would not get anything, hence I assumed the second bank may not be willing to approve a HELOC on a house that has a mortgage, but I am not sure. (I knew the 80% minus the amount owned)
Also realize that you can’t deduct the interest on a heloc. (Or, not any longer)
^^ Not exactly. You can if you use the proceeds for home improvements.
http://money.cnn.com/2018/03/08/pf/taxes/home-equity-interest-deduction/index.html
So…all I really need to do is save my receipts for my home improvements? Or do I have to use HELOC checks to pay the bills?
Good question. I’m not sure.
I did find out that if you already have a HELOC, the interest is still deductible, no matter what you use the money for. 
Whew, since we’re using it a lot for college tuition.
^^ are you sure this applies to 2018?
I hope @BelknapPoint or @Madison85 can answer this…
But it was my understanding that any new monies withdrawn from my HELOC, interest could not be deducted on my taxes after 2017.
The second bank would only end up with nothing if they determined that the home wasn’t worth more than the first mortgage balance and therefore didn’t act to protect their position. But if the home had equity, they’d step in and buy the house at the foreclosure sale, and then sell it for enough to recoup the first mortgage balance plus all or part of what they were owed on the second. Happens all the time; second mortgage lenders understand the risks and that is why they limit their total exposure to 80% of the home’s value.
All other things being equal, a lender would prefer first mortgage to a second, so they’d probably prefer you offer the free and clear house as collateral. On the other hand, most HELOC lenders will only lend on an owner occupied home, so most would only loan on your primary residence, even in second position.
The Money/CNN article linked above explains it pretty well, and provides a link of its own to this IRS guidance, for the true story directly from the horse’s mouth:
https://www.irs.gov/newsroom/interest-on-home-equity-loans-often-still-deductible-under-new-law
What Sherpa said.
Well…I would guess getting my house exterior painted totally…would NOT be considered a substantial thing for my house as outlined in the article.
It also doesn’t sound like college tuition costs would allow interest to be deducted either…@mainelonghorn
@sherpa thank you.
I have another question, say the 80% is based on the estimated market value of the house.
What if I estimate the house to be valued at 500,000, and asked for an HELOC of $200,000 (and the house already have a mortgage of $200,000), but the bank appraises the house to be at $450,000, therefore can only approve the amount of $160,000. Will the bank normally turn down the application? or tell the applicant that it only approves $160,000 and ask the applicant whether she would take the $160,000? - thanks