We have built some equity in our house thanks to the housing appreciation in the bay area. I decided to open up a HELOC (home equity line of credit) to have easy access to the equity. In this post, I’ll talk about why I decided to get a HELOC, how to select the lender/bank process, and subsequent application the process, and finally our experience with using it.
Why I got a HELOC?
It’s an easy way to access your equity. By choosing the right lender/bank, there is no cost to get a HELOC. And if you are not drawing money from the HELOC, there is no cost to keep it around. I got it for two reasons,
- As some of you know, I have been looking at buying investment properties, this would give me the cash needed for down payment, or potentially even to buy the whole thing with cash.
- For the rainy day. For example, our tax this year was much higher than I had expected, and I owned uncle Sam quite a bit of money. Rather than selling off stocks, I paid the government from the HELOC, and paid back over time.
Obviously, HELOC is a form of a loan, and could impact your ability to borrow additional money. That’s not a big deal for us.
Shop around for banks and rates
Now it’s time to go shopping. I did some research and set a few criteria for select the right HELOC for me. You may have different ones
- No cost to get the HELOC. As I didn’t specific needs for the HELOC, I didn’t want to cough up money ahead of time.
- No cost to keep the HELOC. Again, I didn’t specific needs for the HELOC, I didn’t want to pay to maintain it.
- Rate. Of course, get the lowest rate possible.
- Easy access to the money. It needs to act like a bank account, I should be able to write a check, get a cashier check etc.
- Bank with good reputation and service.
- Loan amount. We were looking for a substantial amount, some lenders had a maximum cap that were below our loan amount.
Things I didn’t care as much
- What % of home value you are able to borrow? Most lenders allow you to get up to 80% of the value of your home, some more, some less.
- Option to turn HELOC into fixed rate loan. Didn’t really case for that, in my experience, I can generally get a better rate with a fixed rate loan than from HELOC. This option makes it more convenient, but not necessary.
- Physical bank branch. I’m very comfortable with doing business on line, it’s no big deal.
1 and 2 were a given, I filtered out anything that didn’t meet those criteria. I started locally first with the banks in the city we live in, Wellsfargo, Bank of America, Chase, none had great rates. Mostly were around prime + 0.25%/0.5% range, I knew I could do better.
I then started to wide my search to online banks and credit unions as well. DCU (Digital Federal Credit Union based in Massachusetts) offered the best rate, Prime – 0.25%. I looked through a number of reviews/sources to make sure it’s a reputable lender.
Applying for the HELOC
Overall, DCU made it pretty simple. I filled out a form on line, a couple days later, the bank assigned a person Donna (yes, a real person) to work with me and guide me through the process. We used a combination of email/phone for communications, I provided the requisite standard documents which wasn’t too bad. Some of the other lenders I worked required a lot documentations (Provident credit union in particular was difficult on this front).
I dealt with Donna throughout the entire process rather than passed from rep to rep which I was quite pleased. The process was pretty quick, they arranged for a appraiser which they paid directly to estimate the value of our home to determine how much loan we can get. I based our original ask using Zillow estimate and houses sold recently in our neighborhood, my estimate turned out to be pretty accurate. A few weeks later, I was approved. They arranged for mobile notary to come to my house to do the signing. And throughout the entire process All in all I would give a 5 for the application process.
Using the HELOC
When I got the HELOC, I didn’t have a specific purpose in mind. But soon, the opportunity arises. Our tax this year was much higher than I had expected, and I owned uncle Sam quite a bit of money. Rather than selling off stocks, I paid the government by writing a check again my DCU HELOC account. Yeah, it worked as I intended. This part was simple.
Now paying back, I paused our regular monthly investment to pay back DCU. Now I ran into some issues,
- DCU didn’t send regular monthly paper statement. So I didn’t even know when my payment was due and how much I needed to pay.
- I couldn’t find a way to link my regular checking account to DCU to enable bill pay. I had to go with the old fashioned way to write a check.
- DCU had a very rudimentary website, and didn’t have much capability. At the end when I was going to pay off the loan completely, I looked up the payoff amount from the website, and wrote a check against it. But it turned out to be a few dollars short, so I ended up with some late fees and stuff.
Now that I know, I’ll work around these issues, but I wish DCU has a more capable and accurate website.
All in all, I have been pretty happy with my decision on HELOC, and will keep it around.