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Home Equity Loan in 2021


credithelp823
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Hi Everyone,

 

Thanks to some of the greats on here, I was able to secure a mortgage back in 2017.

 

Life happened and I’m back to rebuilding.

 

However, the goal is to get a home equity loan to refinish our basement. I think that’s what best... correct me if I’m wrong. I believe from reading the threads on here since HELOC would show 100% utilization.

 

Would a refi be better option?

 

I’m a goal driven person so having this goal will help me while stay focused.

 

Right now scores are upper 500s. We secured a FHA with middle scores of 620-650. So is that what’s needed... would a lender accept lower since we have equity?

 

Received one quote for around $30k. I’ll get probably two more but that’s probably the average. 
 

We have about $40k in equity. Definitely don’t want to pull all of it out and would cap it at $30k.

 

I’m not sure what baddies to tackle first. What would have the fastest improvement to scores?

 

Here’s a quick list:

120 day late from first two mortgage servicers

Lates from car and fed loan 1 1/2 years ago.

medical collections

collections

 

Thanks so much!

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I don't believe you will find any cash-out refi options with appealing terms with scores in the 500s.

 

Scores aside, for a home equity product (loan or line of credit) to be a viable option, you'd still most likely be limited by 80% combined LTV (first mortgage balance + equity loan [or line] amount divided by current home value).  Scores considered, your options are going to be nil for equity loans/lines in the 500s also.

 

21 hours ago, credithelp823 said:

I’m a goal driven person

The best way to prevent a recurrence of credit issues is to establish a emergency fund of 12 months of expenses (6 is generally the standard recommendation, but that wasn't nearly enough to get many people through 2020). 

 

I wouldn't consider borrowing more money to refinish a basement until you've met this goal.

 

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I’m not going to pull the trigger in anytime soon. 
 

I would want my scores at least where they were when we first secured the mortgage.

 

Just having a goal in mind to keep me focused and to have a plan of action. 
 

If I’m calculating LTV correctly, I’m at 68%. 

 

Let’s scores are at 620- what would you suggest?

 

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5 hours ago, cv91915 said:

I don't believe you will find any cash-out refi options with appealing terms with scores in the 500s.

 

Scores aside, for a home equity product (loan or line of credit) to be a viable option, you'd still most likely be limited by 80% combined LTV (first mortgage balance + equity loan [or line] amount divided by current home value).  Scores considered, your options are going to be nil for equity loans/lines in the 500s also.

 

The best way to prevent a recurrence of credit issues is to establish a emergency fund of 12 months of expenses (6 is generally the standard recommendation, but that wasn't nearly enough to get many people through 2020). 

 

I wouldn't consider borrowing more money to refinish a basement until you've met this goal.

 

That’s very true. 
 

Rebuilding is hard work and I wouldn’t want to go down this road again.

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22 hours ago, credithelp823 said:

I’m not going to pull the trigger in anytime soon. 
 

I would want my scores at least where they were when we first secured the mortgage.

 

Just having a goal in mind to keep me focused and to have a plan of action. 
 

If I’m calculating LTV correctly, I’m at 68%. 

 

Let’s scores are at 620- what would you suggest?

 

Even at 620, your options for a HELOC/HEL will be more limited, and you will be paying dearly for it in rate, especially at a LTV of >80%.  You said above you had 40k in equity, is that total or to the 80% threshold?  If it is to the 80% threshold that would mean your house is worth ~$333k and you owe ~$226k.  If that is total equity (meaning your house is worth ~$125k and you owe $85k), that would mean you only have around $15k of equity to get to the 80% threshold.

 

Your best bet is to find a couple of mortgage brokers that service your area (you can use google, zillow, realtor, doesn't really matter), and ask them what the options are.  Compare what they have to say.  Should give you an indication of what may be available.

 

Why are you refinishing the basement?  Is there some pressing need to do so?  If not I would back burner this for at least a year to raise scores, build more equity and see if you really need it.  Also, be aware that this will likely not raise your equity value dollar for dollar that you put into the home. Figure somewhere in the 60-75% range.

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