Hey everyone I hope all is well with you.
I have been getting a lot of inquiries since being on the His and Her money show about how we went through the process of getting a HELOC (Home Equity Line of Credit).
It truly has been an honor speaking to many people I have never met before- but yet they trust me enough to ask about my experience.
As I have gotten into conversations with them, with having some insight on their finances and/or lifestyle, I realized that it was in their best interest to hold off on getting a HELOC.
I also sat down with a banking professional who worked on my HELOC and asked her questions on when a HELOC can be disadvantageous to a person.
From my learnings, this is when I suggest a person NOT to entertain the idea of getting a HELOC.
Not disciplined enough
Remember getting a HELOC is like getting a giant credit card, and it’s an expensive credit card. If a person has issues with spending too much money on their credit card, I suggest sticking with a mortgage and adding extra payments into the principle balance. Another suggestion would be to tell the bank that a debit card and check book is not needed for the HELOC account. Payments to a HELOC can easily be made with on-line transfers.
Too many debts
Even though a person is a high income earner, if your debt to income ratio is too high, banks usually will hesitate to replace your mortgage. They most likely will suggest that you open a HELOC in second lien position, which is a no-no and not worth your time or effort. The best thing to do is to have no or very low debt so the process will be a smooth transition.
Acquired new mortgage
If one has obtained a new mortgage or just refinanced their home, at times banks require for the new loan to be in effect for at least a year before they will replace your old mortgage. Many times the bank wants to make sure that there are no delinquent payments and that the loan is in good standing.
Too many HELOCS
Usually the maximum amount of HELOCS an investor can have on several different properties is 4. There are ways to bypass this process by consolidating some of the properties to one loan, or putting the loans into a different entity. I’m not saying this restriction applies to all banks, but many of the big box banks will not loan to you if you have too many open HELOCs.
All in all, there are many ways to pay off high debts, this is a method that has worked for our family with a combination of other factors, the biggest one being determination.
My question to you is do you plan on getting a HELOC? If not, what is holding you back?
Until next time…