a few questions about applying for HELOC

All kinds of HELOC programs, second mortgage programs, non-purchase money first/second mortgages. Some states have a mortgage system (which involves foreclosure to collect) other states have deeds of trust and a ‘cancellation’ system.
You have to talk to a banker or broker to figure out what is best for you.

Even if the HELOC or other secured loan is behind another lender who forecloses, it doesn’t mean your HELOC is cancelled. Just the security may be gone. You still owe the loan back.

@annamom - Typically a HELOC lender would give a conditional, preliminary approval, and then order an appraisal to confirm the value of the home. If the appraisal came in lower than needed, then the loan amount would be adjusted downward to the (typically) 80% combined loan to value level. It would be very unusual for the bank to simply turn down the loan.

Another factor to keep in mind is that some banks and many credit unions will offer true “no cost” home equity loans, where the lender absorbs all the title, appraisal, and other loan costs. Often one way of keeping these costs down is to waive the need for an appraisal based on the local tax assessor’s estimate of market value.

Using your example, if the current tax assessment on the home is $480,000, your local credit union might offer you a no cost HELOC in the amount of $184,000 (480,000 x .8 - 200,000) and not require an actual appraisal.

Disclaimer: My understanding of a lender’s ability to waive the appraisal is based on my own past experience, but may not be currently accurate under current banking regulations.

Yes, that was what the bank issuing our HELOC did in 2012, used the real estate tax appraisal and capped the max loan amount at the lower of some % of that or $250,000. In HI, the $250,000 is generally lower. There was no appraisal performed of our house by the bank.

To this date, we have not been charged any fees for getting or having our HELOC nor borrowed anything against it.

thank you both.
I have spoken with two banks, they both said they would not charge me the appraisal fee, but one would charge me $99 for the application fee. I assume the $99 is okay.

I like to avoid paying fees as much as possible, but agree that $99 is small change. Still, I’d recommend calling a couple local credit unions to inquire about their programs and then comparing all costs, interest rates, and other loan terms. Credit unions are often the “easiest” HELOC lenders.

I agree that calling around is a good idea and checking on all fees. Schwab and other institutions also offer HELOCs. I didn’t check around because the bank holding our mortgage offered us the totally free offer that sounded fine to me. Our Schwab agent mentioned they offered HELOCs too but i had already gotten one from our bank so never learned the details.

$99 is not that high but I like free when possible, all things being equal.

@annamom – when you got the 2 quotes (where one bank would charge you a $99 application fee) were they idential in every other way? I assume they’re both based on Prime plus a margin. How long is the IO period? Any requirement to draw down a certain amount of principal at closing? Any early termination fees (which are different from prepayment penalties)?

^^thank you.
I did look into the above as I have learned most of everything I need from this forum.

As an aside, I am surprised as one bank told me it is prime minus 0.5 (not for the introductory period) as I always thought it should be at least Prime.

@Classof2015 makes a good point about early termination fees. It makes sense that a lender would want to charge an early termination fee if they paid all of the closing costs on the borrower’s behalf, which is something they often do.

Here’s why: If a bank or credit union offers a true “no fee” HELOC" they’ll need to pay some out of pocket costs at closing including, at minimum, a title insurance policy which will cost at least several hundred dollars. If the borrower never draws on the line of credit, the bank will lose money on the loan. So they’ll want to keep the loan on the books as long as possible so they have a chance to earn some interest to at least recoup their out of pocket expenses.

So it’s fairly common for lender’s to charge an early termination fee so the borrower doesn’t jump to another no fee lender on a whim.

I don’t object to such fees on principle, but would want to be sure to choose a loan that was consistent with my plans and needs.

Agree to be sure to read the fine print and find out if there is any minimum draw and when, also any fees or costs or penalties associated with early pay-off if you may do that. When you fully understand all the terms, you can make the most informed choices.

sherpa, banks get a better deal on title insurance than the guy on the street (you and me) and are probably only buying a ‘date down’ policy, for filings since the last mortgage was filed. They would have filing fees to pay to secure the loan, and those can be expensive.

On reason that banks don’t want to keep the HELOC open when there is no activity is that the line of credit open goes against the banks total lending power. When the crisis hit in 2008, many banks closed or lowered the overdraft protection limits on their accounts. My sister had been with Wells Fargo for a bazillion years and was furious when they lowered her overdraft limit to like $1000 from $10k or more. She’d never used it, but they were dinged for her having it open. With a HELOC, the amount of the open line of credit is counted against the bank’s total. If you have a $50k line, that full $50k. For BofA or Wells, that means little as they have billions in assets. For the smaller community bank, with under $200m in lending limits, they can’t afford to have too much inactive accounts out there. They can’t sell the HELOC like they could a mortgage because there is really nothing to sell.

If you decide to go with the $99 lender, ask if it can be refunded if you do, in fact, close the loan with them. Many just charge the fee to make sure you are serious. They don’t want you shopping around for a loan without being serious about closing. They don’t really want the $99, they want you to close the loan.

@twoinanddone - Thanks for the information about inactive lines constraining banks’ lending capacity. That helps explain why some lenders charge an annual fee to keep a LOC open even if it isn’t being used.

Just out of curiosity I called a title company friend who told me that a bank’s total out of pocket cost for title and recording fees on a $150,000 HELOC would total around $300, which would vary by state and county, and doesn’t include an appraisal fee or any of the bank’s internal costs to close the loan in house.

But by closing the loan in house, a bank can save the borrower what could easily be hundreds of dollars of escrow company “garbage fees”.

It would definitely depend on the recording fees. Some counties charge $10/page. Others charges by the amount on the loan. For seconds and HELOCs, the title policy is often just an update since the last filing, which may be 2 years ago or might be 20 years ago.

The closing fees are always negotiable for the best customers. It’s the little guys who always pay them.

Do people normally get an attorney for opening a HELOC?

@annamom

Around here…folks do not need or get an attorney for opening a HELOC. We did ours right in the bank where our mortgage was held. Took all of 20 minutes.

@thumper1 Thank you. I went to a bank, but not the one that has our mortgage. I was surprised when they sent us a letter telling us that we can have an attorney and that their attorney only represents their interest. Hence I am not sure whether it is common to waive that right.

We never consulted one and as far as I know, most people just reach out to one or a few lenders and compare offerings

They are probably required to tell you by state law that their attorney only represents them. It is unlikely you need an attorney because the bank is NOT going to redo the forms or terms. If you do not understand the terms, then either ask them to be explained or take them to an attorney.