Hello all. My husband and I have found a home we would like to buy. The home we are in now is a smaller home, which we have paid off and no longer have a payment on. The home we would like to purchase is a very desirable home, and we would like to buy it without a contingency, because we believe we will lose it if we don't. So, until ours is sold we would be using a home equity loan to put down on the new one. Our home should sell relatively quickly, as we are in a city where the market is not as poor as other cities, and it is a starter home in very nice updated condition, in a desirable school district. Here's the question we have, (and since it is a weekend, we can't speak to a lender until Monday)... How does the interest on one of these home equity loans work? Are we in danger of racking up huge interest costs if our house does not sell for a few months? (The home equity loan would be about $150,000. Any info would be very much appreciated!!
Thanks,
Pam

My husband and I did something like that last year - we found the perfect house for us but had a 100+ year old house in the city to sell first. It was paid for, so I figured I could use a home equity loan to get the new house. WRONG - we would have to live in the old house to get a home equity loan. Instead we took a loan against it for $80,000, but the interest rate was about 3% higher than home equity would have been.
It took me a year to get the old house cleared out, fixed up, on the market and then sold (we were there 32 years). That second loan plus the mortgage on the new house have been killer, and I wish I could have saved some money with a home equity. Don't know if it's the same everywhere, but I figured I'd throw this in for your consideration. Good luck!

So you weren't able to get a home equity loan? My realtor got one a couple of years ago when she bought her house, and my husband spoke with a lender a few weeks ago who gave the impressions that a home equity loan was the way to go.
Pam

Most lenders will not let you open an equity account if the home is currently on the market. I know people have used this option, but you need to take the loan out before putting the house on the market.

Do I understand this correctly -your house is paid off, but you don't have enough saved to put down on the new house? I don't mean to be rude here, just kinda doing a reality check. If you haven't been able to save toward a new house while you have no house payments, how will you be able to afford monthly house payments?

Not only that, while you are waiting for your current house to sell, you'll have 2 loan payments if you can get the home equity loan. If you lived in a house for 32 years, you probably need to do some updates to make the house marketable. Where is that money going to come from?

Just some things to think about.

katie

Interest rate will depend on your credit no matter what kind of loan you get.
Why couldn't you go FHA 3 percent down, have the seller pay your closing costs, or VA if you or your husband is a vet 0 down and avoid the equity loan?

If you need to find out this weekend, in order to not lose the home to another buyer, I know a great lender you can talk to for advice who works nationwide 24/7. She is over-protective of her buyers just like me and that's a good thing.

pm me if you'd like.

I don't think I was clear enough in my original post. Yes, our house is paid off, and yes, we have some additional savings to put toward the new home, in addition to the substantial equity from our current home. It's not a question of not having the money, it's a question of having the money in our hands at the time we close on the new home. Until our house sells, we don't have the cash in hand, so will have to bridge that gap in time with a loan of some kind, or else make the purchase of our new home contingent on the sale of our old one. See what I mean? I wasn't sure of all the options open to us.
Pam

quote:

Originally posted by Sassy Kat:
Do I understand this correctly -your house is paid off, but you don't have enough saved to put down on the new house? I don't mean to be rude here, just kinda doing a reality check. If you haven't been able to save toward a new house while you have no house payments, how will you be able to afford monthly house payments?

Not only that, while you are waiting for your current house to sell, you'll have 2 loan payments if you can get the home equity loan. If you lived in a house for 32 years, you probably need to do some updates to make the house marketable. Where is that money going to come from?

Just some things to think about.

katie

This is the same home that house foundation problems, right? You decided against it on another thread, So all this is a mute issue.

Alrighty..now.

This message has been edited. Last edited by: real estate lady,

Well, it's not really a mute issues, because we are house hunting very heavily and need this info for any home we buy. Yes,you are right, we did decide against the one with the foundation problems, but we are looking at several other good prospects today, so the info is still very helpful to us.
And, by the way, Real Estate Lady, we appreciate your answer about the foundation issue. It was great to get the perspective from someone who has dealt with buyers in the same situation, and you pointed out things I had not even though of.
Pam

quote:

Originally posted by real estate lady:
This is the same home that house foundation problems, right? You decided against it on another thread, So all this is a mute issue.

Alrighty..now.

I can only speak from my own experience.

In October 2004, we finally found a house we decided we liked enough to move to from our previous house...that was not yet on the market. The night we made a non-contingent offer on this one, the "For Sale" sign went up (by a realtor) on our old one. We didn't want to lose the house. We had been looking on and off for over a year, and this was really the first one we both walked in and went "this is it".

Our money for the down-payment for the new house was the equity from our other house...which had been paid off completely for about 8 years. We sat down, crunched numbers, and decided to borrow (Home Equity Line of Credit) about 75% of our original listing amount to give us some cushion. The local bank had a deal. 4% for the first 4 months (which turned into at least 5), and then prime +1% after that. Surely in 4 month's time we'd sell......NOPE.

However, we did sell the other house in August 2005. It turned out (including closing costs and realtor fees) that we had borrowed 88% of our equity from the final equity in the house. We anticipated well, although we had hoped to walk away with a little more cash.

So it can be done...the part you have to factor in that you might not be anticipating are the utilities that you have to carry on the "empty" house. We left some furniture there so it didn't look vacant and so we could keep the house insured since it was possible for us to come back and stay in the house (they tried to cancel on us one time)...had to keep electric and gas for cooling/heating...a phone for the alarm system. Water for when house hunters used the restroom, or when we went to clean. THOSE were the costs that drove us nuts and added up!

Just crunch your numbers well, and do NOT borrow ALL the equity from the old house since this is a bad market in most areas for selling. Assume the worst in what you might SELL the house for...and go lower than that on your Equity Line of Credit.

OH....one other thing...once we bought this one, we waited a few months and then were able to transfer the HELOC over to this house. We did that so we'd have it available to us for emergencies since this house was worth $100k more--kept the same loan amount though - didn't want to mortgage ourselves to the max.

This transfer showed itself to be a smart move because one of our "emergencies" ended up being when our son's car died 8 months before college graduation. One grandmother always gave the grandkids a substantial gift for college graduation to put towards a car we were able to "advance" him his gift without having to go to the grandmother.

So....long story short....anticipate NOT just the HELOC monthly loan payments, but the utility and insurance expenses in case you carry the house for a while.

This message has been edited. Last edited by: Gail_D,

Not to be a grouch here..... but the word is "moot" not "mute." (I couldn't help it after I read it twice! Sorry!!!)

moot:
–adjective
1. open to discussion or debate; debatable; doubtful: a moot point.
2. of little or no practical value or meaning; purely academic.
3. Chiefly Law. not actual; theoretical; hypothetical.

Thanks Mr. B.. was in a hurry...

Oops, sorry , didn't catch it.
Pam

quote:

Originally posted by bmrbabe:
Not to be a grouch here..... but the word is "moot" not "mute." (I couldn't help it after I read it twice! Sorry!!!)

moot:
–adjective
1. open to discussion or debate; debatable; doubtful: a moot point.
2. of little or no practical value or meaning; purely academic.
3. Chiefly Law. not actual; theoretical; hypothetical.

Anyone know -- what is the rate on HELOC's these days in comparison to a fixed 30 year FHA loan?

Think it can vary from lending institution to lending institution. I'd make phone calls. Our best rate just happened to be with a locally owned bank!

Thanks, Gail -- I'm just looking for generalities like one will likely be close to 7-8% and the other will probably be in 5-6% range. I'm wondering if the OP has researched the difference, including closing costs, in order to find financing for her new home.

In our case, there were no closing costs (which surprised me). I don't think we even paid for the appraisal!

We did this but with a home line so the interest was way lower.. we only borrowed 40,000 for the downpayment until our home was sold. We made one payment as our home sold quickly.. once the home was sold.. it covered what was borrowed. So you should not have a problem.. even for the full amount as your home is payed off. One thing you have to watch is the interest rate. here a home equidy and home line are have different interest rates.. the home eqity has a higher interst rate for us.
I'm located in canada so I;m not sure how things work there for you.. but best to check around before you sign anything.

Something also to keep in mind regarding the HELOC is that many lenders are cancelling/not offering these any more due to the poor housing market.
We had one until about a week ago...we took it out when we purchased our home 3 years ago, and subsequently paid it off almost 18 months ago. We have excellent credit, no debt except the mortgage, and our debt to income ratio is fantastic. Our lender closed the HELOC without even contacting us - simply sent a letter stating that due to declining home values in my region the HELOC was no longer available to us.
It wasn't much of a big deal because we don't need it, but it was always nice having that extra money available if needed. Just something to look into before even deciding if a HELOC is the right option.
Good luck!