Reply to Any reason to have a HELOC?

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[quote=Anonymous][quote=Anonymous][quote=Anonymous]Very easy way to access a downpayment if you need to move and want to buy before you sell.[/quote]

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?[/quote]

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. [/quote]

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