Determining home equity loan value

[Sigarms]

It's great that you found a place that you like! The debt part is scary but hopefully it'll be over relatively soon.

I will agree with you there.

It's really no different how I was crapping bricks when we bought our current home, but being that we are in a better financial situation vs over 20 years ago when we bought our current home I should have less to worry about LOL).

My wife will tell you that I'm no different than my father. I just hate change the older I get LOL. Our current home was the first real home I ever owned (first home at age 39) and a lot of memories here with our boys, in laws living with us when they decided to move and buy in NC, along with my dad living with us for 4 years until he passed).

 

[MossRoad]

Home equity line of credit.

Wife also fell in love with an older place (built in the early 60's). Single level, 1,650 sq ft with an unfinished basement. Came with close to 4 acres, and we're going to be having a lot of work done on it.

The price was right, and figuring on what we need to sink into the new place, it can be done. Game plan is move in January / Feb, do some upgrades on the current home (due to the appraised value just so it doesn't look like we lived in it for 20 years lol) and put it on the market. Our current home is kind of unique to the area with house size and land, so time will tell.

I wasn't as enthused as my wife about the "new" home, but she has always had a better vision than myself when it comes to the future, and the more I go over there (about 20 minutes away from our current home, but in the same county) the more it's growing on me and I'm starting to see what she is seeing on what it can become.

I think I've mentioned a couple times in the past... blanket loan.

We paid our first house off in about 4.5 years. It was appraised at $30K. We wanted to buy 20 acres outside of town. It was also appraised at $30K.

Vacant land required 20% down, so $6K down payment would have been required.

Instead, we got a blanket loan that covered the TOTAL value of our home and the land at $60K. So we only had to borrow $30K against $60K asset. Since we already owned 50% in equity, no down payment was required.

We paid that off in about 3-4 years.

Then we wanted to move to a larger home. So we found a house at about $65K. They wanted 20% down, so $13K downpayment.

We put the value of our existing home and the value of the new home together under another blanket loan for a total of $95K in value. We already owned $30K in equity, which was about 27% of the total, so again, no downpayment needed.

Only stipulation on that blanket loan was when we sold the original house, we had to give the bank enough cash to be more than 20% in equity.

We spent about 3-4 months remodeling the new house before moving in. It was nice to not be rushed. I even worked out a thing with the phone company to have the same phone number ring at both houses until we sold the original house (pre cell-phone days).

We put the full $30K back to the bank when we sold the original house, so only a $35K balance on the blanket loan. Worked out well for us twice.

 

[MossRoad]

After we signed for the new place, I wasn't getting much sleep at night because I was worried what could go wrong LOL

My wife said something to me which is one reason why I married her... Long story short, she brought God into the equation which I didn't. I get it, if you don't believe in God, I could be a fool, but the reality is financially we can afford what we're doing, but we are incurring debt doing it, and I HATE debt. However, no different than when we bought this place 20 years ago with the stress of debt, and in reality we are in a better position now vs 20 years ago since this house is the only thing we are in debt on, but that debt should be gone in the first quarter of next year after we sell our current home.

It's going to be nice in a much smaller home along with an unfinished basement for storage for just the two of us. With just us.

I think the house we bought would have been perfect 20 years ago, but the reality is our current home worked out perfect with the boys and my dad living with us along with all of our animals and pets over the years and this new house could never accomplish that.

Every time we talk about moving or building, my wife forgets that once we do that, we'll sell the current house and put that money towards the new home. "Oh yeah, I forgot about that."

 

[Sigarms]

I think I've mentioned a couple times in the past... blanket loan.

We paid our first house off in about 4.5 years. It was appraised at $30K. We wanted to buy 20 acres outside of town. It was also appraised at $30K.

Vacant land required 20% down, so $6K down payment would have been required.

Instead, we got a blanket loan that covered the TOTAL value of our home and the land at $60K. So we only had to borrow $30K against $60K asset. Since we already owned 50% in equity, no down payment was required.

We paid that off in about 3-4 years.

Then we wanted to move to a larger home. So we found a house at about $65K. They wanted 20% down, so $13K downpayment.

We put the value of our existing home and the value of the new home together under another blanket loan for a total of $95K in value. We already owned $30K in equity, which was about 27% of the total, so again, no downpayment needed.

Only stipulation on that blanket loan was when we sold the original house, we had to give the bank enough cash to be more than 20% in equity.

We spent about 3-4 months remodeling the new house before moving in. It was nice to not be rushed. I even worked out a thing with the phone company to have the same phone number ring at both houses until we sold the original house (pre cell-phone days).

We put the full $30K back to the bank when we sold the original house, so only a $35K balance on the blanket loan. Worked out well for us twice.

We're only planning on doing this once

At this point, it's working well. We can afford the payments (something we were not use to for a while) which is also paying for the renovation of the new home. Absolute worst case scenario is the housing market crashes and we can't sell the home we've lived in. We can still swing the payments on the credit line for the new home and renovation indefinitely if need be (of course we don't want to do it that way LOL).

 

[MossRoad]

We're only planning on doing this once

At this point, it's working well. We can afford the payments (something we were not use to for a while) which is also paying for the renovation of the new home. Absolute worst case scenario is the housing market crashes and we can't sell the home we've lived in. We can still swing the payments on the credit line for the new home and renovation indefinitely if need be (of course we don't want to do it that way LOL).

You know how they make copper wire? Try and pull a penny from my fingers.

Just kidding, however, it's kinda wired in to look at the price of things, see the best value, etc...

 

[Sigarms]

You know how they make copper wire? Try and pull a penny from my fingers.

Just kidding, however, it's kinda wired in to look at the price of things, see the best value, etc...

Honestly no clue about the copper wire joke (LOL), however, per the "cost of things" nowadays, it's kind of beyond stupid.

That said, when we bought our original home a long time ago, I prayed to my God that if we could sell the place for the same price we bought it, I'd be ok. Thing is, just the appraised value alone on just the house and 6 acres is more than I could ever imagine back then.

 

[Torvy]

The only reasons you would use your current home as collateral:
1) a construction loan where the bank doesn't agree with the value vs price (Loan-to-value [LTV] is an important term in lending.)
2) the house you want to buy doesn't appraise to what you think it is worth.

In these cases, it can be better to take out a loan (mortgage) against your old property and use the cash to buy the new one. Once you sell, you pay it all off.

As Ultrarunner mentioned, a bridge is a bit different. We had to do that with our previous place. Texas limits the LTV. Our place in WI was under contract for full price, but contingent on their property selling. It fell through and we had to get a bridge loan to cover the difference.

Home equity loans have a place, but I would avoid them in most cases.

 

[MossRoad]

Honestly no clue about the copper wire joke (LOL), however, per the "cost of things" nowadays, it's kind of beyond stupid.

That said, when we bought our original home a long time ago, I prayed to my God that if we could sell the place for the same price we bought it, I'd be ok. Thing is, just the appraised value alone on just the house and 6 acres is more than I could ever imagine back then.

When we bought our first home ($20K) it was a place to live, not an investment. We never thought of it that way. Same thing with our current house. However, they were so inexpensive that it left us money for investing, kids' education, etc... all-in-all, can't complain. Life is pretty cushy.

 

[MossRoad]

The only reasons you would use your current home as collateral:
1) a construction loan where the bank doesn't agree with the value vs price (Loan-to-value [LTV] is an important term in lending.)
2) the house you want to buy doesn't appraise to what you think it is worth.

In these cases, it can be better to take out a loan (mortgage) against your old property and use the cash to buy the new one. Once you sell, you pay it all off.

As Ultrarunner mentioned, a bridge is a bit different. We had to do that with our previous place. Texas limits the LTV. Our place in WI was under contract for full price, but contingent on their property selling. It fell through and we had to get a bridge loan to cover the difference.

Home equity loans have a place, but I would avoid them in most cases.

He's not dong a home equity loan, he's doing a home equity line of credit. They aren't the same thing.

Home Equity Loan vs HELOC: Pros and Cons - NerdWallet

Home equity loans and lines of credit let you borrow your home's equity. The loan is a lump sum and the HELOC is used as needed.

www.nerdwallet.com

 

[Sigarms]

When we bought our first home ($20K) it was a place to live, not an investment. We never thought of it that way. Same thing with our current house. However, they were so inexpensive that it left us money for investing, kids' education, etc... all-in-all, can't complain. Life is pretty cushy.

The irony is I never looked at our first home as an investment, but a place I wanted to live, and a place for kids to have their own land to wonder about on.

Now that we are going to sell, I see it more as an investment property because I thought we paid way more for the place than we did, because I thought $3,300 an acre was way to steep.

As mentioned, first home I ever bought at age 38 or so so I was crapping bricks on the first one. This is the second one, and if all goes as planned, the place we will both die in...