I get “pre-approved” offers all the time for home equity lines of credit. Silly me, I went to My Personal Banker (snerk) without having received an offer from them. After 9 weeks (I am not kidding), they told me that my debt to income ratio was too high and I was denied.
OK, first question - is HELOC eligibility based on income? I own 2 homes with approximately $120,000 equity combined. I have a Morgan Stanley portfolio. I pay my bills on time. I have credit cards, and I would like to pay them off as soon as possible due to higher interest rates. What I don’t have - a job. Technically, I am employed. However, since my auto accident the end of April, I have worked very little and will be off work another 2-3 months after my hip replacement surgery. I didn’t think I was applying for a loan, just access to my equity. So is the job thing a deal breaker here? I am looking for about $30,000, far less than the equity in my main residence.
Second question - worst case scenario is refinancing. But, honestly now, wouldn’t I be turned down for that too because of no income?
Do only people with lots of spendable income qualify for a HELOC? Sorry, that doesn’t make sense to me. The Morgan Stanley is a retirement thing which I hesitate to touch. It isn’t making me big dividends, but somehow I need to whittle down my high interest credit balance - my gut says leave Morgan Stanley out of this.
I thought this should go in GQ, since I am looking for facts about how home equity lines of credit are approved. Thank you.
bump Just lettin’ you know. MizPullin is a loan-department manager at a local bank. I believe she’s pretty familiar with HELOCs. I cut/pasted the text of your question and emailed it to her. Will pass on her answer as soon as I get it.
It appears that you have enough equity and your credit rating would seem to be good from your descriptions of your debt paying habits. HOWEVER, they are looking at your ability to repay the debt rather than your credit worthiness. The fact that they said that it was the debt to income service ratio means that they are comparing the outstanding debts you owe (their monthly total payments) with the amount of income that you have. If that ratio is over 40%, then most FIs will deny a new loan. Since you currently have a lower income than you had, they don’t want to risk the loss. They would rather have you pay their interest for a long time than deal with real estate since there are other costs associated with the siezure and sale of the property. I suspect that if you had applied for this prior to the accident, then you may have been approved.
You may have better luck if you ask them to help you do some debt consolidation in order to have fewer and lower payments.
It seems to me that you are in fact applying for a loan where the collateral is the equity in your houses. Any loan officer is going to take your ability to repay that loan into account.
You may find someone who will make that loan to you (either as a first or second mortgage), but the fees and the interest rate will undoubtedly be higher.
Cantara beat me to it, but since I just heard back from the Missus, here’s the answer(with caveats, we’re in TX, not CA):
“Yes, approval of a loan IS based on your debt to income ratio and the [ability to repay the debt] of the applicant. If his/her income is too low (or non-existent) to support the amount of debt already owed, the loan would more than likely be denied.”
She goes on with more detail, but, [I’m summarizing – include salt grains] collateral is merely a last resort. She sez the bank almost always loses big-time on foreclosures/repossessions, and is far more interested in ability to repay than anything else.
Thanks for the info, even if it is quite grim. I wonder why they keep sending me that “pre-approved” crap, with outrageous amounts of money supposedly available to me???
The easy answer would be that they are unaware of your new and current income situation. More likely though, is that you are on the mailing lists and you will continue to get them regardless of your finances.
When my girlfriend (now wife) was just out of college and had a real job for a few months (and her first car) she had received a ‘pre-approved’ credit card offer. She just had to fill out all the information (which I thought they should have if she had been approved) and send it in. She was denied her pre-approved credit card because she didn’t have a credit history which you get from credit cards (and other forms of credit loans). Closer inspection reveals that she was pre-approved to make an application for consideration for a credit card. So what does the ‘pre-approved’ mean? It means they mailed the application to you instead of you picking one up at the bank. :rolleyes:
Back to the OP, start a converstation with the bank about consolidating debts into a single loan so that you can close the higher interest loans and lower your monthly payments (both amount and number of creditors). Then close the high interest loans (including credit cards…well, keep one). You will be paying for longer, but hopefully less interest in the long run. The bank would really like to keep you as a paying customer for a long time. You are no good to them if you go bankrupt.
Why? If the OP has enough equity in his home, and if the home is collateral, wouldn’t the lender do as well or better if he defaults and they get the house? Guess I don’t understand the whole business of secured loans.
Isn’t there potential for big profit though? Joe Consumer has a home worth $100,000. He has a mortgage that is nearly paid off. He gets a home equity loan for $15,000. He defaults. The bank sells the house to the first half way decent offer and…big profit!
I don’t think so - the main problem I think is that banks are not in the business of selling houses - typically foreclosures are sold for much lower than their actual value - the bank just wants to get whatever $$ it can as quickly as possible - generally before foreclosure happens the owner has been defaulting on mortgage pements for quit a while.
Suffice it to say, a bank will make much more $$ over a 30 year mortgage at a 5% interest rate, than they do trying to sell a $100,000 home ASAP.
