Why Home Equity Lines of Credit are Hard to Come By!

It wasn’t long ago when home owners could relatively easily tap into their home’s equity by securing a Home Equity Line of Credit (hereafter referred to a as a HELOC). HELOC’s were a pretty simple way to fund home remodel projects, pay for college, swimming pools, etc. without having to drain one’s personal savings in order to pay for such a cost.

However, many lenders have moved away from offering HELOC’s to their customers, making funding such projects a little more challenging these days. The main reason is HELOC’s take a subordinate (secondary) position to the first mortgage secured to a property. For example, if a home owner has a primary mortgage on their house (home loan), this is the first note secured to the property and would be in first position to foreclose on the property (take the property back in the event of non payment/loan default).

Unless a home owner does not have a home loan, a HELOC would always be in second position or “subordinate” to the primary home loan. With the current inflation our nation is experiencing and the enduring Covid-19 pandemic still being a problem, my assumption is many lenders are fearful of another housing crash; similar to the one in 2008 wherein lenders that had HELOC’s out on millions of properties lost a tremendous amount of money due to the large amount of foreclosed properties (remember in a foreclosure, the primary home loan is in first position, not the HELOC lender and therefore the primary lender has first right to the foreclosed property).

There are still ways to tap into one’s equity for various needs (home remodel projects, college, etc.), but HELOC’s may become a complete thing of the past, if they have not already. Doing a cash out refinance is the most common, but these can come with their own set of challenges and considerations as well, depending on how much equity an owner has in their home, how many years are left on a mortgage, etc. (do you want to go back to a 30 year loan if you owe say 20 years on the note, can you afford the new payment associated with taking cash out of your home, etc.).

For more information on this topic,

Read the Original Article Here: Where Have All the HELOCs Gone? The Latest Wrench in Home Renovation

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