GUEST BLOGGER – RICH BIRA FIRST CAPITAL MORTGAGE CHICAGO IL – May 20 2008
GUEST BLOGGER – RICH BIRA FIRST CAPITAL MORTGAGE CHICAGO IL – May 20 2008
YOUR HOME EQUITY LINE OF CREDIT – IT MIGHT BE IN TROUBLE!
(Rich Bira our Preferred Lending Partner at First Capital Mortgage Chicago IL serving all Chicago Neighborhoods and suburbs has been handing financing for many of our clients for over eight years. His comments today on how the rules for Home Equity Loans are enlightening. See contact information for Rich at the end of this post.)
Do you have a line of credit against your home? Are you saving for that rainy day or for a home project down the road?
Well I am going to give you a word of caution. Lenders are starting to pull back the available money that you have on that line. Even if you have perfect credit and have never used the line of credit you could be next. I personally know a few people that have gotten letters in the mail from Countrywide stating that there available line amount has gone down sometimes down to the balance you have.
For example if you have a $50000 line of credit and you have $20000 sitting on it some lenders are pulling it back down to only $30000 available.
Just the other day Washington Mutual came out and said that they are going to suspend $6 billion in available home equity loans that are already in place. This is on top of all lenders cutting back the available that they will lend to on new transaction. The average line of credit now can’t exceed 90% of the value of your home.
Now I am not saying to go out and spend up to your available credit limit before they cut you off but if you have a specific purpose for that money and you were planning to tap the line of credit it might be wise to take it out now. Keep in mind that you will have to start paying on it the minute you do.
I am going to through in a big word of CAUTION here.
There is a dark side to these lines of credits that I have noticed in the last 6 month. You see when real estate values were going up a lot of these lenders who specialize in Home Equity Lines of Credit got very aggressive in valuing your home. The more they said your house was worth the more you could get in a line of credit.
I can’t tell you how many times in the last several months I have had a client come to me and say that they went and got a line of credit through National City Chase or another lender and that they borrowed up to 95% of their home. When I take a good look at what their house is worth now versus what the 1st and 2nd mortgage total up to they are now upside down.
Some of these banks didn’t even use a regular appraisal; they just used an automated valuation program that gave them the appraisal. This in my opinion was a horrible practice.
CAUTION: Take out as little as you need. Especially if you think you are going to be selling your house within the next 2 years. You don’t want to go up to 90% of what you thought your house appraised at when the 2nd mortgage was done according to the bank and then find out that the appraisal was overinflated to begin with.
Contact Dean’s Team for a quick comparable value search on your home without cost. It’s very important to know how your mortgage balance compares to your home’s market value today.
Rich writes regularly about trends affecting the Home Mortgage Market via his blog – www.fcmwestloop.com/richbirablog . Call him anytime – 312-267-4859 – with any questions at all.
DEAN MOSS & DEAN’S TEAM CHICAGO
