HELOC question

[old medic]

DW had a coworker that retired last year, and has run into issues on buying a new house do to his retirement income...
So this has me wondering if we should look at securing a HELOC now before I retire in Dec? Its not that we need it at the moment, but would be nice to have a $50K loan ready to go if and when we do....

 

[pb4uski]

Yes, it will be much easier to get a mortgage or a HELOC when you have employment income.

We refinanced just before I retired... in fact, I had stopped working and was "on vacation" when they did the employment verification and the refinance closed and then my last paycheck as a couple weeks later.

 

[2017ish]

We did that. Took out a big HELOC (and refinanced) within 6 months of retiring. Haven't needed it yet, but it's there and drawable until 2027....

Little or no cost for some backup funding.

 

[MRG]

Yes you should. We waited and only qualified for 30% of what we would have when I was still working

 

[Another Reader]

You may have difficulty establishing a HELOC right now. A lot of big banks are not offering them. I have an established HELOC with Wells Fargo with no balance, and no draws are currently allowed.

 

[OldShooter]

I guess we are a counterexample. We are building a new lake home in order to be closer to family and, when we can move, we will be selling our current lake home. All of our assets are in tax-sheltered accounts, so it is very undesirable to finance the new house construction by IRA withdrawals as when the dust settles and the current house is sold, we would have a bunch of unneeded cash. So we did two things: We updated an old HELOC on our city home, basically a new application. Then we took a cash-out mortgage on our current lake home. Now, when the dust settles we will use sale proceeds and some IRA funds to finish the financial aspects of the transactions.

The HELOC was with US bank and it was a major headache due to all the documentation required. In the process they moved us into their "Wealth Management" group. Maybe they have more flexibility there but we were told from the beginning that there was no question that the loan would be approved. They ate all the closing costs including the appraisal.

The cash-out mortgage was with Alerus bank. DW knows the regional president, and her friend referred us to their top mortgage producer. USBank was a walk in the park compared to all the hassles and hoops we were forced to go through but again the loan was approved. In fairness, this loan had to be standardized to the nth degree so it could be sold. There was even a small glitch because we did not have copies of our annual SS "award letter." Never mind the bank statements showed the SS payments and we had the sorta-1099s from SS for 2020. Gotta have the letter or they go to SS for a duplicate. Stupid.

So. @oldmedic, the answer is probably "It depends." $50K is not a large amount, so I would suggest asking your question and shopping the business to a few banks and credit unions and see what they say. You might also see if you qualify for your current bank's high-net-worth customer category. From that information you can make a decision.

 

[nico08]

You may have difficulty establishing a HELOC right now. A lot of big banks are not offering them. I have an established HELOC with Wells Fargo with no balance, and no draws are currently allowed.

My mortgage and HELOC is with PenFed Credit Union. My HELOC is currently at an appoximate $30,000 limit, I wanted to increase that, I have a lot more equity in the house. Originally, I was told that PenFed could do a drive by appraisal, with no cost to me, as part of the application to increase the line of credit. Recently, I was told that none of their appraisers in the area will do a drive by appraisal, they will only do an onsite appraisal, and I would have to pay approximately $500 for the appraisal.

Does anyone know any lenders who are currently issuing HELOCS and using drive by appraisals? Or, said in another way, are you aware of lenders who are issuing HELOCS without me incurring additional costs for the HELOC? Thanks.

 

[OldShooter]

... Does anyone know any lenders who are currently issuing HELOCS and using drive by appraisals? Or, said in another way, are you aware of lenders who are issuing HELOCS without me incurring additional costs for the HELOC? Thanks.

My new HELOC, $275K at USBank, was done at no cost to me. If you are in their market area, you might check with them and also ask about their "Wealth Management" customer category. When they moved me into that category I got one call from a broker who knew from our paperwork that she was wasting her time. She was, and I have not been bothered again.

 

[nico08]

My new HELOC, $275K at USBank, was done at no cost to me. If you are in their market area, you might check with them and also ask about their "Wealth Management" customer category. When they moved me into that category I got one call from a broker who knew from our paperwork that she was wasting her time. She was, and I have not been bothered again.

Awesome, thanks for the tip.

 

[Deej]

We secured a HELOC for $250K (the most we could get without any cost to us) just after we paid off our mortgage in 2017 (advice from our old accountant). Of course, we could get a higher amount now because our house is worth has escalated considerably. DH will be retiring this fall and we know we will eventually buy a one-story home. We wanted to ensure we have the available funds on the ready to plop down when we find the right house in a few years from now. Our current home will sell quickly as they all do in our neighborhood to pay off the HELOC. We were told we can re-up our HELCO at the 10 year period for another 10 years, which we will do. To date, we haven't borrowed from the account.

 

[38Chevy454]

For whatever reason, the bank underwriting people have ability to look at regular income streams and being good and easy for them to use in their determinations. They are not so capable or good with a big 401k balance where you want to avoid a large taxable withdrawal situation, even if your 401k is several times larger than the HELOC amount. So yes, it is definitely advantageous to apply when you have that W-2 income and the regular income deposits now while you are still working. BTW, since a HELOC is basically no cost if not used, apply for more than the $50K so you have that option in future if you want it. Say $200K approved, even if you don't anticipate needing more than the $50K. Gives you an extra $150K available that might be a lot more difficult to get once retired.

 

[OldShooter]

For whatever reason, the bank underwriting people have ability to look at regular income streams and being good and easy for them to use in their determinations. They are not so capable or good with a big 401k balance where you want to avoid a large taxable withdrawal situation, even if your 401k is several times larger than the HELOC amount. ..

That was not our experience (post #6). That's why I suggested to the OP that he ask a few lenders his question. SGOTI's generalizations, including mine and this one, are not always reliable.

 

[daylatedollarshort]

We are in the process of refinancing and just received our closing docs so it looks like everything is going through okay. Most lenders, at least the ones in the Costco Mortgage program, said that for us (retirees) they needed to see regular monthly income streams, like Social Security, annuity payments, pension income or automatic, monthly withdrawals from a retirement account. For asset income, we had to fill out an online form from Fidelity and set up monthly withdrawals from retirement accounts to checking. The lender needed to see the set up form and one month's distribution. We can cancel the automatic withdrawals after the loan closes. There may be other kinds of income they will accept like rental income but we don't have that so I can't comment on it. (Penfed told us they looked at income from 2 years tax returns and not the monthly distributions for asset based income).

Most loan officers I talked to say they are following Fannie May rules and "trust me, I've been doing this for 20 years". Then they tell you something different than what the other loan officers say who have also been doing this for 20 years say and different than the Fannie May income rules, which are published online in various places.

 

[jazz4cash]

I took out a HELOC before retiring “just in case”. We wanted quick easy access with no tax consequences in case of an emergency or major home improvement. We used Third Federal who seems to specialize in various mortgage products.

 

[lauradrops]

My mortgage and HELOC is with PenFed Credit Union. My HELOC is currently at an appoximate $30,000 limit, I wanted to increase that, I have a lot more equity in the house. Originally, I was told that PenFed could do a drive by appraisal, with no cost to me, as part of the application to increase the line of credit. Recently, I was told that none of their appraisers in the area will do a drive by appraisal, they will only do an onsite appraisal, and I would have to pay approximately $500 for the appraisal.

Does anyone know any lenders who are currently issuing HELOCS and using drive by appraisals? Or, said in another way, are you aware of lenders who are issuing HELOCS without me incurring additional costs for the HELOC? Thanks.

We did one for 100K with CAP COM credit union with drive by appraisal. It was all done at no cost to us.

 

[old medic]

So. @oldmedic, the answer is probably "It depends." $50K is not a large amount, so I would suggest asking your question and shopping the business to a few banks and credit unions and see what they say. You might also see if you qualify for your current bank's high-net-worth customer category. From that information you can make a decision.

LOL... $50K is for us... Our credit union doesn't do HELOC, have to do a mortgage. So I will be hunting.

 

[ponyboy]

I dont understand HELOC's. So you can secure a HELOC and not actually use it? Which means there is no penalty, just money waiting for you in the event you want to tap into it.

If the time comes and you want to use the loan, are interest rates really low to pay it back?

 

[old medic]

I dont understand HELOC's. So you can secure a HELOC and not actually use it? Which means there is no penalty, just money waiting for you in the event you want to tap into it.

If the time comes and you want to use the loan, are interest rates really low to pay it back?

I'm new to the idea and may be wrong... but from what I understand is its a pre approved line of credit using your home equity to secure it. Set limit amount over a set time... say $30K for 5 years... so for the next 5 years we have a blank check good for up to $30K for any thing we want... repay terms I'm still not sure about.
But keep in mind... I'm in class... and in the corner with the dunce hat on.

 

[The Cosmic Avenger]

I'd like to open one, but none of my current banks are even offering HELOCs right now.

 

[OldShooter]

I dont understand HELOC's. ...

I'm new to the idea ...

They re quite simple, really, though like anything they can be a bit opaque to a newbie.

First, the "LOC" part. Line Of Credit. The lender agrees to lend to the borrower up to the limit of the line, any time during the period of the line. There is no repayment requirement until the end, when any outstanding balance must be paid or refinanced. (Edit: Typically the borrower must pay interest monthly but this can be done by borrowing against the line.) I had a line that had seen no activity, zero balance, for years. I viewed it as a standby resource. Some will report that LOCs have been canceled or limited by lenders from time to time but I have no personal knowledge of that.

Second, the "HE."Home Equity is the most common collateral for a consumer loan. For businesses the collateral is typically all of the business's assets. The collateral for a consumer doesn't have to be the HE if the borrower has other collateral that the lender will accept. I have seen adverts from Schwab saying that they will loan against assets in taxable accounts. Terms, rates, etc. I have no idea.

Since an LOC may be open for years it is common for the interest rate to float on an index. "One over prime." "Two over LIBOR." Both Prime and LIBOR have become somewhat discredited in recent years, so our most recent HELOC renewal floats on some other index but I don't remember details. Interest rate risk is always there for a long loan and someone will always bear it. A HELOC with a floating rate basically means that the borrower is bearing the rate risk.

The only other thing to understand is that for consumer loans, lenders like standardization in all aspects. Documentation, collateral, etc., so you are unlikely to get a loan collateralized by your pristine 1948 Willys Whippet or based on your daddy's promise to include you in his will.

 

[38Chevy454]

I dont understand HELOC's. So you can secure a HELOC and not actually use it? Which means there is no penalty, just money waiting for you in the event you want to tap into it.

If the time comes and you want to use the loan, are interest rates really low to pay it back?

Basically correct. It is a line of credit that is secured by your home's equity (hence the name Home Equity Line Of Credit). A HELOC is set up for some period of time usually 5-10 years, and the interest rate is calculated based on whatever the bank (or creditor) uses. Interest rate is variable and typically related to prime rate or similar. So if interest rates rise, your HELOC rates rise as well. Your bank will have the method they use to calculate the interest rate listed if you get serious about more info. Rates are approx around the same as mortgage rates, so a good low rate source of funds if needed. Payments on the HELOC is typically based on a 30 year payback term, like a mortgage. So if you hit the end of the HELOC term and have outstanding balance you will need to make a lump sum balloon payment.

You can have HELOC approved and then not use it, or wait to use it, or use it immediately. There can be a nominal yearly carrying fee whether you use the HELOC money or not. But that fee is like $100-ish range, so not a significant factor.

 

[old medic]

Just looked up our county tax appraisal value.... liked to have fell over... $253K
$30K shouldn't be a problem being its owned free and clear...

 

[jazz4cash]

They re quite simple, really, though like anything they can be a bit opaque to a newbie.

First, the "LOC" part. Line Of Credit. The lender agrees to lend to the borrower up to the limit of the line, any time during the period of the line. There is no repayment requirement until the end, when any outstanding balance must be paid or refinanced. (Edit: Typically the borrower must pay interest monthly but this can be done by borrowing against the line.) I had a line that had seen no activity, zero balance, for years. I viewed it as a standby resource. Some will report that LOCs have been canceled or limited by lenders from time to time but I have no personal knowledge of that.

Second, the "HE."Home Equity is the most common collateral for a consumer loan. For businesses the collateral is typically all of the business's assets. The collateral for a consumer doesn't have to be the HE if the borrower has other collateral that the lender will accept. I have seen adverts from Schwab saying that they will loan against assets in taxable accounts. Terms, rates, etc. I have no idea.

Since an LOC may be open for years it is common for the interest rate to float on an index. "One over prime." "Two over LIBOR." Both Prime and LIBOR have become somewhat discredited in recent years, so our most recent HELOC renewal floats on some other index but I don't remember details. Interest rate risk is always there for a long loan and someone will always bear it. A HELOC with a floating rate basically means that the borrower is bearing the rate risk.

The only other thing to understand is that for consumer loans, lenders like standardization in all aspects. Documentation, collateral, etc., so you are unlikely to get a loan collateralized by your pristine 1948 Willys Whippet or based on your daddy's promise to include you in his will.

YMMV
I’ve had several HELOCs and they all vary a bit so it’s tough to generalize. Every one I’ve had requires a monthly payment if you have a balance. My current HELOC has a very low payment during the “draw” period which is ten years. At the end of ten years I cannot take any draws against the line of credit. It becomes a 20 yr fixed loan essentially.

 

[OldShooter]

YMMV
I’ve had several HELOCs and they all vary a bit so it’s tough to generalize. Every one I’ve had requires a monthly payment if you have a balance. My current HELOC has a very low payment during the “draw” period which is ten years. At the end of ten years I cannot take any draws against the line of credit. It becomes a 20 yr fixed loan essentially.

OK, that's a little different than I have seen in our market. All the more reason for the OP to be talking to some lenders instead of just SGOTI.

 

[jazz4cash]

Another interesting experience back when we relocated the lender brought a HELOC loan package to the closing on our 1st mortgage loan. It was a throw in that we never asked for. All we had to do was sign the docs and the loan was sitting there “just in case”. That was in the go-go days of 1999.