Talk to me about the pros/cons of home equity loans? Why don't I want to do this?

A couple things to think about with a home equity loan...

if you are unable to pay the loan payment you risk your house...with your credit cards now, you don't lose your house/property if you can't pay. I would never recommend using home equity for the purpose to pay credit card debt you are already struggling to pay.

Home equity loans are really good for improvements to your home that will help maintain or improve the equity. For instance we had to take out a home equity loan just recently to pay to have our foundation stabilized(no emergency fund would have ever covered that bill). This is using our equity to do something that maintains the house value. If we didn't do this, we could take a loss of more than $70K when we sell the house not to mention any other damage that may continue to occur.

If you use the money to purchase a car, then again your house is still at risk, rather than just getting a car repossesed.

Although it is difficult, I personally would get a separate loan for the car if you really need one, continue with the credit cards working to get them down and take a smaller home equity loan for the home improvements. This may be harder for the purpose of cash flow, but it keeps things compartmentalized appropriately.

HTH

Thanks Sarah. That makes a lot of sense. I had only thought "you don't want to use equity if you can help it" but I didn't think about whether the loan was for home improvement or something else.

Can I ask, did you/do you typically have to pay closing costs on a home equity loan?

Just a thought but they have done studies and most people who use something (home eq loan, tax return or other windfall) to pay off cc usually run up the cc's again. I can't remember where I read that but I am sure it was when I was working for the financial planner. He really recommends paying off the cards instead of taking out a loan to pay them off. Does that make sense?

Well, it is all really personal, but I think I'd have to see the $$ breakdown for debts owed + the total cost of what you need to buy before I made a decision.

Do you have any savings at all? We talked about using a home equity loan for our 10K problem last summer. In the end, the work didn't need to be done, but speaking to an advisor, he recommended doing a partial loan and dipping in to savings too. We tend to have problems with this house that are so expensive that we need to empty the savings. I always wondered if that was a good idea. The answer, of course, is no. :)

If you don't want to share specifics, or you only want to do it in a pm, that would be fine. I do think using a home equity loan for any sort of "disposable" item like a car is very risky if it is a stretch to buy it in the first place.

Can I ask, did you/do you typically have to pay closing costs on a home equity loan?





Our fees and costs associated with the equity loan were about $300. This was on a $50K loan. We could have chosen to have those rolled into the loan, but since we took the loan out for the exact amount of the repair costs, we chose to just pay them at closing. It was super easy...almost too easy if you ask me to get a HEL. I called our bank(USAA) and we could have scheduled our closing for 48 hours from when I called. It was scary how fast they approved it.

Sorry, deleted specific financial info here. I'm trying to do this without mucking up the thread entirely! :lol:

Eek, Sarah, that is scary. I just read on the federal reserve's website, that you can cancel any home equity line of credit or second mortgage within 3 days of closing if you do it in writing and they have to refund every single fee. Because it puts your house at risk.

It makes me leery.

okay...on my $50K equity loan the payment per month is just under $400 so you have a bit of reference on that.

With the amount you have for extra plus the amount you would relieve in the budget if you sold the car, this is what I personally would do...

1. I would sell the car and not the truck...the demon you know is better than the demon you don't know. You know what is up with the $1000 truck, but wouldn't have any idea with a $1000 car:lol:

2. use the $ from selling the car to purchase a used minivan as you would like to

3. continue to pay off the credit cards and DO NOT USE THEM FOR ANYTHING

4. If you can pay off a chunk by summer's end AND have not used them for six months, I would then look at the equity loan for the tractor and home improvement. By that time the payments would be lower in your budget and would free up some funds to make the home equity loan payment...make sense?

Right now you just don't seem to have the wiggle room for those large purchases financed over time or not.

dang, you aren't yahoo'ing :p

ok, first, IF you do this, how are you going to ensure that you don't just run the CC's up again? Do you have a plan for that? I don't think I would buy another junker of a vehicle unless you are prepared to have money set aside for maintainence. If there isn't really money in the budget for maintainence, then you are just setting yourself up for more debt.

Have you considered just doing a straight refi and pulling money out , rather than a HELOC? As long as you keep the amount that you pull out under 80 percent of the value (ok that may have not made sense, lol--- basically if the house appraises for 180, you could pull out 36k), then you wont have to pay PMI and the rate on the entire loan will be lower. I don't like HELO's--- having open ended credit that it against the value of your house is a little scary.

Aren't you also getting back taxes still? That could help buy a commuter for DH? A 4k commuter would probably have a lot of life left in it.

I need to run for a few minutes--- login to yahoo if you have the chance :)

1. I would sell the car and not the truck...the demon you know is better than the demon you don't know. You know what is up with the $1000 truck, but wouldn't have any idea with a $1000 car:lol:

We have to sell the truck though. I can't fit the kids in it, and I am at a point where we need a car for me that I can fit both kids in. And it's not in good enough shape, and gets horrific mileage, so it can't be a commuter for dh.

However we could get a $3k car and finance a couple thou. ?

4. If you can pay off a chunk by summer's end AND have not used them for six months, I would then look at the equity loan for the tractor and home improvement. By that time the payments would be lower in your budget and would free up some funds to make the home equity loan payment...make sense?

Right now you just don't seem to have the wiggle room for those large purchases financed over time or not.

Yes it does make sense. And you are right. We don't have the wiggle room for the home equity payment. We have come to the same conclusion.

still thinking...

dang, you aren't yahoo'ing :p

I don't like HELO's--- having open ended credit that it against the value of your house is a little scary.

Aren't you also getting back taxes still? That could help buy a commuter for DH? A 4k commuter would probably have a lot of life left in it.




I agree with HELOC...for that reason we did a home equity loan...HEL which is just a fancy smancy way of saying 2nd mortgage...ROFL. It is just too scary to have $ attached to my home to "use" whenever I wish on whatever I wish. I thought that is what she was referring to...a loan vs a line of credit(which I would say no way to!).

lol well when i am 1 handed typing (which i am abt 75 percent of the time here), yahooing is often much easier. I managed to slip him down for a min to reply earlier, but it didn't last long.

I still would just look into refi'ing. We have a 1st and 2nd, but did it that way to avoid PMI, and the payments are much higher on 2 seperate ones than one larger. Now you do build equity more quickly for that reason, but still. This is only if you are set on getting money now though.

I think what I would do is this... 400 for water heater, 600 for w/d. 1k for mower and 3k for commuter car (1k from sale of the truck and 2k from taxes). Wait on the tractor-- you can often get a better deal in fall anyway.

uck nak again and 1 haded typing when i am trying to be articulate sucks-- more later :)

la la la... (deleted specific financial info)...

You get a tax advantage from a home equity loan that you don't get with CC debt. So, since you know you aren't going to run up CC for friviolity, I think it's safe for you and yours, Mamabear, to get a home equity loan. You could also get an equity line of credit that you can access, but do not have to use. If you get home equity loan, make sure there is no clause that penalizes you for early pay off. Because knowing you, you will pay it off years early. :)

As soon as I have equity, I am going to build an 700 sq foot addition, and not feel the least bit guilty about it. :)

Well, you've gotten some really good advice so far Lauren. It sounds like you aren't really considering a HEL anymore which I think it a good idea. With the months as tight as they are right now, it wouldn't be any better with another payment.

I have some other suggestions that you can use or discard as necessary. IIRC, you have 20 acres?? You might consider only developing a small portion of it now. It is hard to see the potential of what you want and not be able to fully realize it NOW. I feel this way all the time, but it truly will happen over time. Because I'm visual, I like to think of it as a flower opening a petal at a time.

Instead of a tractor right now, I'd consider continuing on with what you are doing and pay someone this year to cut trails and to grade the land to keep the basement from flooding. Sure, it makes sense to have a tractor yourself over the long haul, but it doesn't sound like you are in a position to do this. I know I have a tendency to think: "Oh if I just had X, I wouldn't have to pay someone else." Consider though, if you had to pay $500 this year to cut trail vs. $8000-$10000 for a tractor. I'm not saying a tractor isn't worth it, but I just don't know that your family is ready for the big purchase. *ducking*...

Right now, you are in a "needs" situation vs. "wants" or you could easily be down in the financial dumper. I don't mean to be fatalistic, but your unsecured debt is pretty high. Without the possibility of having a savings, that hole will just keep getting bigger.

I'm really not trying to be harsh, so I hope you don't think I am. I'm a worrywort when it comes to people I care about. :)

My suggestion is to buy those true needs with your refund. Then, do some serious changes to your w-4's and use the extra monthy to pay down your CC debt.

Now, on savings... Let me be clear and say that in no way to I advocate cheating the gov't. I'm going to make this suggestion, but I don't know the ramifications of this, so please have mercy on me. :D Can you put money away in someone else's name? I'm just thinking of others ways you could have a "tractor" fund without it being mixed in with your money. I'm not suggesting you squirrel away money getting rich while getting your gov.'t SSI money, but honestly, how does a person take care of themselves for a rainy day while receiving SSI benefits? I suppose if a person can do so, they can also take care of the child's needs w/out help, but I have a hard time imagining it. Medical costs are so high!

Lastly, I can't stress enough how important reliable transportation is. While I never see cars/trucks as assets, they are an integral part of life success. There are serious costs with buying and re-buying vehicles every few years. Can your budget deal with this?

Have you considered getting a "summer job" at one of the resorts for maybe just his year? That might be a way to make some extra cash for your debt.

I hope you don't feel picked on. I don't mean it that way at all. I just see you "so close" to striking that balance, but it is like a see saw. You're teetering over one way rather than working back towards the center of gravity.

What about a small amount of cash savings for lifel's predictable emergencies? You could keep it in a safe deposit box, and the SSI computer can't audit box contents the way they can bank statements.

I think the less you finance, even on a HEL, the better it will be so long as things are tight.

What about a small amount of cash savings for lifel's predictable emergencies? You could keep it in a safe deposit box, and the SSI computer can't audit box contents the way they can bank statements.

I think the less you finance, even on a HEL, the better it will be so long as things are tight.


That is a great idea!

I have some other suggestions that you can use or discard as necessary. IIRC, you have 20 acres?? You might consider only developing a small portion of it now. It is hard to see the potential of what you want and not be able to fully realize it NOW. I feel this way all the time, but it truly will happen over time. Because I'm visual, I like to think of it as a flower opening a petal at a time.
You are absolutely right. Our concern is with the brush filling in. It has gone three seasons already and if it is not bush hogged this year it will be a huge job to do it next year - it will be removing bigger trees/shrubs/undergrowth, yk? It's something that has to be done now if we eventually want to have animals or just keep the land open (ie we are not intending to grow a forest). However, we can rent a bush hog this year, or even a tractor, to do the work. We don't have to buy our own.

Instead of a tractor right now, I'd consider continuing on with what you are doing and pay someone this year to cut trails and to grade the land to keep the basement from flooding. Sure, it makes sense to have a tractor yourself over the long haul, but it doesn't sound like you are in a position to do this. I know I have a tendency to think: "Oh if I just had X, I wouldn't have to pay someone else." Consider though, if you had to pay $500 this year to cut trail vs. $8000-$10000 for a tractor. I'm not saying a tractor isn't worth it, but I just don't know that your family is ready for the big purchase. *ducking*...
Nope, you're absolutely right. Never mind cutting trails - that's really just a "nice thing" a tractor could do. Our biggest priority is the basement because it will compromise our foundation to let that go, plus grow mold and such in the basement. We've already had a quote and it's $2000 to have someone else do the grading of the land.

Right now, you are in a "needs" situation vs. "wants" or you could easily be down in the financial dumper. I don't mean to be fatalistic, but your unsecured debt is pretty high. Without the possibility of having a savings, that hole will just keep getting bigger.

I'm really not trying to be harsh, so I hope you don't think I am. I'm a worrywort when it comes to people I care about. :)
Thanks Stacy. You're not being harsh at all IMO. I totally agree with you. The lack of savings sucks. And we need to keep focusing on needs not wants. It just feels like the homestead has needs of its own :P and we can't afford to take care of them, yk?
My suggestion is to buy those true needs with your refund. Then, do some serious changes to your w-4's and use the extra monthy to pay down your CC debt.
That's a great idea - changing the w-4s. We upped exemptions already but a lot of our refund is earned income credit. And we are now homeowners again and probably could take more exemptions. A lot has changed taxwise for us in the past year so I think we haven't had our exemptions reflecing that.

Now, on savings... Let me be clear and say that in no way to I advocate cheating the gov't. I'm going to make this suggestion, but I don't know the ramifications of this, so please have mercy on me. :D Can you put money away in someone else's name? I'm just thinking of others ways you could have a "tractor" fund without it being mixed in with your money. I'm not suggesting you squirrel away money getting rich while getting your gov.'t SSI money, but honestly, how does a person take care of themselves for a rainy day while receiving SSI benefits? I suppose if a person can do so, they can also take care of the child's needs w/out help, but I have a hard time imagining it. Medical costs are so high!
I really can't. As Christy suggested, we did have a small stash of cash, but that was depleted a while back for an emergency need and we haven't been able to replace it.

Have you considered getting a "summer job" at one of the resorts for maybe just his year? That might be a way to make some extra cash for your debt.

I'm an hour drive each way from any type of work like that. Plus again we run into a couple of barriers. For every $1 we make we lose 50 cents of our SSI money. So we get $500ish each month. If I make $1000 a month, we lose all of that - but we're only ahead $500. Plus we still would need to purchase a vehicle, whereas this summer we could get by with the Subaru and truck because Matt doesn't work. If I worked, we'd need to buy a vehicle for him to drive the kids around in, or a vehicle for me to drive to work in. And I'm freelance writing about 20 hrs a week right now and making way better money than I could at a summer job, once you count all the commuting costs etc.

I hope you don't feel picked on. I don't mean it that way at all. I just see you "so close" to striking that balance, but it is like a see saw. You're teetering over one way rather than working back towards the center of gravity.

Not at all. I put this out there for help and advice and fresh eyes. It's helped a lot in our decision-making process.

Anyway here are our true needs as I see them:

*some sort of solution for snow removal next winter (could be an ATV with a plow, a tractor, a lawn tractor w/snowblower, or paying someone $15 each time to plow IF we can find such a person, everyone is full and not taking new jobs)
*a lawn tractor for mowing
*bush hog 10 acres this summer (can rent)
*get land graded so basement can dry ($2000 to pay excavator, may be able to rent equip and do this ourselves for less)
*second vehicle that holds the kids and is safe but doesn't have to be super new or anything (also this counts against our SSI resource limit, so it can't be worth much - I forgot about this - we get one vehicle exempted. Our total resource limit - cash, bank accounts, vehicles, etc is $3000. Tractor would be exempted as farm equipment.)
*new hot water heater
*new washer/dryer (and by new I mean new to us for all of this!)

Sigh...I still see all of that costing more than $4000. :eyes: We will just sit and think a while. And a sofa has been completely crossed off the list!!! I don't know what we were thinking. We are going to find a used futon frame for now and worry about that later.

nak

How much do you pay on cc's each month?

How much do you pay on cc's each month?

Around $300. So my thought is we'd be paying about the same on a $30-40k HEL yet we'd have lower finance charges/APR, plus we'd get a tractor and other pressing needs like the water heater and car out of the deal. I don't know, now I'm wondering if it really might make sense to do it?

If we can afford $300 a month payments on the CC - and we can, it's just tight and we can't increase any more - why not take those balances and the rest of the stuff on the needs list, and finance it on a HEL? We could then take the tax return - under SSI rules we can keep that for nine months - and use it to have a cushion for the next nine months for repairs to cars or other emergencies. And the key - close the credit accounts completely. Then just focus on paying off the HEL over five years.

One more thing, LOL. I have been against getting the tractor this whole time. I keep saying to Matt, look, we can't swing what we're paying now, we can't possibly add to that right now. He gets pretty focused and obsessed when it's something he wants, and there are not many things he *does* want but when he does - look out, all rational thought is gone. Part of my posting here was to reality check both of us. He'll just say "Well let's just do a HEL and finance the tractor and put the CC debt on it and heck, put the addition on it too!" and it's just not based in reality at ALL. I do all the finances, but he's been learning and helping lately. He's starting to get more realistic. He used to hate it if I said we needed to be on a grocery budget. To him that equals "We can't afford food." :rolleyes: He's coming around, but it's been a long process...anyway so I wanted to know I'm not alone in thinking we'd be nuts to increase our monthly payments at all right now.