HELOC Anyone?

Just a couple of years ago, even in a very conservative banking state like Texas, you could get a very attractive home equity loan or line of credit for almost any purpose.  I have recently learned just how much that has changed.

I have a client here in the Austin area looking for an investment property who wishes to use a home equity line of credit to supplement a significant cash investment to make the purchase.  This couple is debt-free, including 100% equity in their primary residence.  So far it seems that the kind of financing that would make sense for them is no longer available.

This is not the kind of financing that I am involved with every day, but I have a great loan officer at a major national bank working on it.  In the process of researching this for my client I found this article scheduled for tomorrow’s Austin American-Statesman:

Home equity loans harder to find

“Traditional 30-year mortgages are unusually affordable by historical standards, but if you’re looking for a home equity line of credit, don’t expect any deals.”  More:  http://www.statesman.com/business/content/business/stories/personalfinance/2009/11/08/1108equity.html

Texas was late, and reluctant, to allow home equity borrowing of any kind.  State law still allows a homeowner to borrow a maximum of 80% of appraised home value, less outstanding liens.  Moreover, the process requires a “cooling off period” of at least 12 days after “loan application and notice of borrowers rights” before the home equity loan or line can close, and even then the borrower has a 3-day right of rescission after closing.  This is NOT what anyone would call “loose” credit.

The client that brings this subject to my mind wishes to borrow only about 20% to 25% of home equity, in a market where the value of that home has actually gained value during the past year.  This should be a lender’s dream customer.  Instead, what we have is a testament to just how cautious lenders have gotten.  If you needed any more evidence that the times have changed, this is it.