HELOC

formerlyGDaisy09 · February 2014

Anyone with experience with a HELOC? DH and I purchased our 2 bedroom 2 bathroom house in February 2012, we paid $205K the house appraised at just over $215. the house needed no work, the previous owners had torn out old carpets and put in hardwoor floors and covered laminate floors with porcelain tile we have repainted walls, made small upgrades (key-pad entry, programable thermostat, landscaping (added gardens and a patio)).

we have some bigger projects in mind but don't have the cash on hand to complete them, we are considering opening a HELOC to pay for them, we'd like to:

Replace the shingles on the roof (the roof is asphault shingles and has been through 25 winters...so this is a need)

Add onto the deck (the deck is connected to the 2nd story of the house and is only accessible from inside, we'd like to wrap it around the side of the house and add stairs to connect it to the patio-I'd classify this as a want)

Add a 3rd bedroom in the basement (the basement is partially below ground so there is a window with sunlight-this is a need once we have kids (3 year plan))

maybe add a bathroom in the basement to make that a "guest suite" (want)

HELOC, good idea? bad idea? only for some projects?

brij2006 · February 2014

I say save up the money for the roof first, patio/deck 2nd, bedroom 3rd, and guest suite last. Only do the projects as you have the cash to pay for them. You won't want to risk getting yourself in over your head on the home.

cbee817 · February 2014

DH and I have done one major home improvement using a 0% credit card. This option isn't for everyone but we redid our kitchen using a 0% credit card for 12 months We spent about $18,000 including appliances. The only thing we saved was the hardwood floors- everything else is brand new including some plumbing and electrical.

I wouldn't use a HELOC personally- I would say prioritize your list and work on each one by one as you can afford it.

Sisugal · February 2014

Avoid HELOCs.
Save first and then spend.

MommyLiberty5013 · February 2014

I am not a huge fan of involving a home's equity in paying for desires and wants (decks and bedrooms). If the roof is leaking and you need a new one STAT because it will cause damage to the structure, then I may consider a HELOC for that ONLY, and then do one that has an option to lock the rate.

formerlyGDaisy09 · February 2014

the roof definitely needs to get done this summer, MUCH easier and cheaper to replace it before it starts leaking. I know Home Depot will do 0% interest for 6-12 months, we don't have a big roof and are handy enough to do it ourselves. so perhaps that's the way to go with that. I'd definitely be worried about leaks next winter, and when we'll often have 2-3 feet of snow on the ground from december through march I'd rather not replace the roof in the winter.

as far as the second bedroom goes, it could wait a few years, my Parents like to come stay with us, but the room they stay in will eventually get turned into a nursery. The reason we're entertaining the idea of a HELOC is because in this area a 3BR house will easily sell for $20-30K more than a similar 2BR so investing $7-8K in finishing that space will significantly increase what we can sell the house for.

The deck I see as improving curb appeal, but again we're handy and have a friend who is a general contractor who would help us out, so the only cost there is going to be materials, we may be able to pull togther the cash for that next summer or pay it over a couple months on a 0% interest card.

Sisugal · February 2014

Not a fan of 0% cards - if you can manage to pay that off in 1 year - then you can manage to save up for one year to pay cash up front.

Other than the roof - you do not need these things, you want them, so save first.
A HELOC operates like a credit card with interest paid on the balance each month. Interest on a HELOC is much higher than mortgage rates.

mana8503 · February 2014

Gdaisy09 said:

the roof definitely needs to get done this summer, MUCH easier and cheaper to replace it before it starts leaking. I know Home Depot will do 0% interest for 6-12 months, we don't have a big roof and are handy enough to do it ourselves. so perhaps that's the way to go with that. I'd definitely be worried about leaks next winter, and when we'll often have 2-3 feet of snow on the ground from december through march I'd rather not replace the roof in the winter.

as far as the second bedroom goes, it could wait a few years, my Parents like to come stay with us, but the room they stay in will eventually get turned into a nursery. The reason we're entertaining the idea of a HELOC is because in this area a 3BR house will easily sell for $20-30K more than a similar 2BR so investing $7-8K in finishing that space will significantly increase what we can sell the house for.

The deck I see as improving curb appeal, but again we're handy and have a friend who is a general contractor who would help us out, so the only cost there is going to be materials, we may be able to pull togther the cash for that next summer or pay it over a couple months on a 0% interest card.

Are you planning to sell/refi the house soon? Otherwise I wouldn't worry about increasing the selling price right NOW. Especially if you don't have to means to do so.

Wants vs needs - You need a roof, you want an extra bedroom and deck. If you're staying there for a while, you have time to make it how you want it when you saved the money for the projects.

Figure out how to get a roof this spring/summer, then figure out how to save to pay for the others.

formerlyGDaisy09 · February 2014

We are planning to sell in the next 4-5 years, this was purchased as a starter home, we're already feeling the need for a larger yard, more space, etc, so we may get the itch to move/sell sooner.

we see the 0% cards/financing as a way to pay for things without having to drain our savings, definitely not right for anyone who can commit to calculating the necessary monthly payment and paying down the balance agressively.

Thanks for the input, my parents used a HELOC to install a generator after they lost power for a week after hurricane Irene, their logic being that as long as they were using the loan from the bank to invest in something that was increasing the value of their home it was a good investment, committing to an aggressive schedule to paydown the debt helped them avoid paying too much interest. always happy to have opinions from all sides. We're checking in with our financial advisor in a few weeks to see what her opinion is based on what we've stashed away in savings.

Sisugal · February 2014

Buying in 2012 and selling in 2018-2019? That is cutting it a bit short to come out financially ahead in most housing markets. Be prepared to bring $$ to the table at closing. Do you have the down payment for the next home? I would recommend talking with a realtor in your area so you do not over improve your home.

formerlyGDaisy09 · February 2014

we bought as prices in our area bottomed out, even just based on what homes in our neighborhood have sold for in the last 6 months home prices are up significantly since we bought. That's a good idea to get back in touch with our realtor and see what she thinks, adding that space was a part of our plan when we bought the house. We are putting $$ in an account for a down payment on the next home, while we have close to $50k in equity in this house based on what we want for the next home we probably need about the same amount in cash.

short+sassy · February 2014

I've considered getting a HELOC, just for the security of knowing I could tap into my home's equity in the case of a big emergency (I do have an e-fund already, though not a super huge one); however, I haven't actually pulled the trigger on it.

But I have looked into it and one problem you might run into is almost every bank I talked to has a ratio of only offering HELOC's for up to 80% of your home's equity. So, unless you put down a 20%+ down payment or homes have gone up in value A LOT in two years in your area, you may not have enough equity in the house to qualify for one...even with buying it a bit under the appraisal value at the time.

Also consider it is probably going to set you back at least a few hundred bucks to apply because you will need to pay for an appraisal, plus bank fees.

formerlyGDaisy09 · February 2014

Thanks that's a good point, we're just in the beginning stages of researching what we would need for it. t me one of the advantages of owning versus renting is that you do invest in that equity every month.

I think based on information here, and the projects i'm thinking of seeming like they're going to be less expensive than I was anticipating. we'll probably not go with the HELOC. DH also had some surprise information about one of his student loans for me last night. Turns out that somehow he has only been paying the interest on one of his loans and that "deal" just expired. Does anyone have experience with Sallie Mae? DH got zero support from his parents for the 2 and a half years of college he attended, he's got about $60K in student loans ($37K with Sallie Mae) not to mention the $25K he had in CC debt (thankfully we've got that down to $2800 in the past 2 years and should pay that off in the next 2-3 months).

I knew he had a large loan with Sallie Mae, but I did not know that the ~$200/month payments were not going towards the principle balance at all. I'm feeling a little frustrated and betrayed this morning.

Xstatic3333 · February 2014

Wow, Gdaisy I am so sorry. I would feel very betrayed as well. Yikes.

To answer your question, we have some experience with Sally Mae. I'll assume these loans are all federal, not private. H did something similar with his Sally Mae loans while we were dating-perhaps this is what your husband did. Right after graduating from grad school and going into repayment, H signed up for unemployment forbearance. He quickly found a job, but a low-paying one, so he just stayed on unemployment forbearance until he was kicked off of it. We didn't discuss all of the details until we were engaged, but I know he was paying some sort of monthly fee to maintain his status. What kills me is that he didn't know about IBR, and if he had signed up for it they would have assigned him payments that were no more than 15% of his take home income and he would have kept the loan in good standing (his monthly fees were sometimes paid late). When times are tough enough, loan servicers will even make your IBR payment zero but keep you in good standing. It's also possible that he's on IBR but now has to renew and doesn't think he'll still qualify (maybe your income went up last year?)

OP, in terms of the financial aspect of this, I would sit down with your H and get well acquainted with federal loan repayment options. Depending on your income, IBR might be an option that keep your payments manageable but still getting your H working on his principal. That said, I would change your lifestyle to pay more than the minimum, because IBR minimum payments drawn out over 25 years will lead to heaps of interest. I'd definitely plan to stay in your current home and keep renovations to necessities only (it's great you can do so much yourselves!) I'd also sit down with H and make a list of all your debts, and then come up with a unified plan of attack. Maybe read TMM-I don't think that plan is the right fit for everybody, but it sounds like it could be a good fit for your situation.

On the non-financial side, I'm so sorry you're going through this. I hope you and your H will be able to get on the same page in terms of paying down debt and stay on the same page going forward.

hoffse · February 2014

I agree with Xstatic. It sounds to me like he had some sort of forebearance going on that has expired.

I would sit down with your H and take a look at the Sallie Mae account online. See if you can't figure out what was going on - the Q&A pages are actually quite good. You also might want to call to see if you can extend the loans to 25 years so that your monthly minimums remain low - and then make an effort to pay them off as quickly as possible. To me that is the best of both worlds: you have flexibility if you need extra cash any given month for an emergency, but most of the time you can pre-pay aggressively. Just because you selected 25 years certainly doesn't mean you have to drag the loan(s) out for 25 years. FWIW, this is what H and I plan to do with his loans when they enter repayment in November. We still hope to pay them off in 5-7 years (depending on raises and bonuses), but we will have plenty of flexibility if we just can't make it happen any given month.

Also look at IBR. I don't know much about it because we don't qualify for it, but it might be a good choice for you guys.

Erikan73 · February 2014

I have HELOC and there are pro's and con's to it. The pro is that interest rate is lower then credit card. We didn't get it for home improvements, we got it to take care of some debt that had very high interest rate. We figured out a set amount to pay back on the HELOC each month which is much higher then what is required. This way we'll have it paid off quickly and the money saved on interest is big. But not thrilled having this debt hanging over our heads.

We do have a few home improvement projects coming up this year, but I'm working overtime & husband and a seasonal 2nd job, we're using the money from those to help save up for those improvements. Some of the things we'll do ourselves, but others we'll hire out because once we figure out the cost of materials, the cost of tools we'll need to buy and then our time, it's worth it to pay a professional to come in to do the job.

formerlyGDaisy09 · February 2014

Thanks Guys,

I think we probably make too much to qualify for IBR, but he has 3 loans serviced by Sallie Mae and 2 by Nelnet, perhaps loan consolidation would help get all 5 of those loans combined into one slightly lower monthly payment (so we could put more towards the total principle each month). Fortunately I've been fairly agressive at paying down my student loans while I've been in grad school, so hopefully we'll be able to shift the same focus to his loans. (and I'm done with grad school in June, so we'll have that tuition $$ back on hand to fill in gaps).

I'm hoping because of my tuition, etc that our tax return will be enough to finish paying off DH's credit card debt so we can reallocate that $$ to his student loans. I'm (a lot) annoyed that I keep getting surprised by DH's financial past. I can't really blame him, his parent thought that college was a waste of time/money and didn't give him any assistance in paying for it, he ended up with the CC debt because they refused to co-sign any student loans for him.

formerlyGDaisy09 · February 2014

and yes were are very fortunate that we're handy and have access to handy people, so the cost of house projects is really limited to the cost of materials. I just finished making thermal-shades for our sun-room where we've been loosing a lot of our heat during the 4-5 cold-snaps we've had this winter, hoping that will save us a lot in propane next year.

my dad, brother, and uncle have all re-roofed houses in the past, so they're going to help with the roof. And Dad and brother have finished basements and offered to help us frame out that space and hang dry-wall, when we decide to move forward with that.

hoffse · February 2014

OP, before you consolidate do check and see if he's gotten any rebates, etc. from Sallie Mae for any loans. Sometimes those get cancelled and you end up owing more if you consolidate. H has a random rebate on one of his loans, so we've decided not to consolidate. He has a total of 7 student loans (thanks to being in school when the feds kept changing the rules, so every semester was a new loan). We are going to just pay them off one by one and start snowballing.

Consolidating does not typically save you money - they do a weighted average of your interest rates, so you're payments usually remain the same. It's just more convenient because you have one bill to pay instead of 5 or 6.

One other thing to check - sometimes lenders will lower the interest rate for things like using direct debit. H has one loan that is eligible for a 0.25% interest rate reduction over the life of the loan if he signs up for direct debit for that loan. It's weird that it's only attached to one, but there you go. That's another reason for us to not consolidate.

Just check the account very very carefully before you consolidate. It's certainly more convenient, but it might be more expensive if you lose some of those random perks that seem to appear with separate loans.

formerlyGDaisy09 · February 2014

Sallie Mae no longer offers consolidation. What they did, at least what my husband relayed to me (i wish we had talked about it before he called them). is that they slightly extended the length of the loan to lower the amount due by about $100 a month (when the deal he had before expired our monthly payment tripled) So that little break for now should help take a few months to refigure our monthly budget, then we can go back to paying more towards principle so that we're not paying these off for the next 10 years.

Its been a rough week DH lost his second job yesterday, I'm so stressed, the hits to our monthly budget just keep coming. I think we're going to be ale to avoid dipping into our e-fund, but all those things we've been saving for for 2-3 years are going to have to go back on the back-burner

HELOC

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