Any reason to have a HELOC?

[Anonymous]

Anonymous wrote:

Anonymous wrote:I have a HELOC and don't remember paying tax on it. Is that just when you open it or annually?

Would like more information on this, too. And when did this start in Fairfax County?

I'm the pp who asked about the taxes earlier in the thread. I'm in Montgomery County and am currently applying for a home equity loan to do some renovations to my house. Apparently in MoCo there are recording fees and transfer taxes that get paid to the County for home equity loans and lines of credit. Montgomery County just raised their transfer taxes to $8.90 per $1,000. Thankfully the bank we are getting our loan from is paying all the closing costs including the transfer taxes. Our only out of pocket fees are the recordation fees of $100.

[Anonymous]

If you own your house outright with no mortgage it is good to have as a defensive mechanism.

[Anonymous]

Anonymous wrote:Very easy way to access a downpayment if you need to move and want to buy before you sell.

how does this work? You have to provide all financial information and that is a huge change. I"m considering paying off HELOC but am saving for a new home- in a TH now and am under the impression the HELOC wouldn't qualify as a down payment option. What am I missing here?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Very easy way to access a downpayment if you need to move and want to buy before you sell.

how does this work? You have to provide all financial information and that is a huge change. I"m considering paying off HELOC but am saving for a new home- in a TH now and am under the impression the HELOC wouldn't qualify as a down payment option. What am I missing here?

I think you are confusing access to liquidity with qualifications to be approved for a loan. You cannot use amounts from a HELOC as income for purposes of loan approvals. What people are talking about is using access to liquidity from your current home to make earnest money deposits or the 20% down payment on a home at closing. Say for instance that that you wanted to buy a new home for 1.2 million dollars (not that hard to do in DC). You may well make more than enough to carry the mortgage. And you may have 3 or 4 hundred thousand in equity in your current house...once it sells. But not many people keep $280,000 liquid (especially with banks paying less than inflation). So where to access the cash for a down payment and transfer taxes, plus moving expenses, new furniture for the new house, improvements before you move in, etc.? The fact that you make a lot of money in salary isn't going to solve that problem. You could sell stock or other investments, but do you want to? And if you do you are going to pay taxes on the gains when you just need a bridge until your current house is sold. The solution is the HELOC. You pull out the $250k and carry the additional loan payments as a bridge until you sell the old house. At closing the proceeds will be used to settle outstanding mortgages (1st and HELOC) with the remainder proceeds going to you. For the carry cost of the HELOC you were able to buy the new house without a contingency and without disturbing longer term investments.

[Anonymous]

What are the typical carrying costs of the HELOC?

[Anonymous]

Anonymous wrote:

Anonymous wrote:Maybe you lose your job and can't find one for another year or two and you need money to live off of, but no one will give you a loan since you don't have a job.

This is real life for me.

My DH is in this position but I work. Hard to tell when he will get another job that pays what he was making. We have two kids in private school (special needs) and need to have money on hand. We have money in savings but it may not last a full year. We have a huge amount of equity in our home, interest rates were low and we could qualify for a HELOC based on my credit and salary independent of DH. It made sense because as a PP said, unexpected things happen.

[Anonymous]

Anonymous wrote:I'll bite. Once we got LTV on mortgage below 50% we got a HELOC and used it to pay off mortgage. So now we have only HELOC. Rate is lower than our mortgage was and we deposit paychecks directly into HELOC and pay expenses out of HELOC.

HELOC is down to about 50k since we started doing this.

We keep no cash on hand. The HELOC is our emergency fund.

Heloc are rarely less expensive unless you were paying too much for your 1st mortgage.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I have a HELOC and don't remember paying tax on it. Is that just when you open it or annually?

Would like more information on this, too. And when did this start in Fairfax County?

I'm the pp who asked about the taxes earlier in the thread. I'm in Montgomery County and am currently applying for a home equity loan to do some renovations to my house. Apparently in MoCo there are recording fees and transfer taxes that get paid to the County for home equity loans and lines of credit. Montgomery County just raised their transfer taxes to $8.90 per $1,000. Thankfully the bank we are getting our loan from is paying all the closing costs including the transfer taxes. Our only out of pocket fees are the recordation fees of $100.

Almost all banks pay the fees you mentioned for helocs

[Anonymous]

Anonymous wrote:What are the typical carrying costs of the HELOC?

Usually no cost.