Acquiring a Heloc on a property, just prior to sale.

[Kenneth Fite]

My family and I are relocating out of state and are near the end of the process of getting a Heloc on our home specifically for cashflow to cover moving, earnest money, and setup expenses. Our realtors wanted to go ahead and do a trial listing on the house, and we ended up getting a few good offers. The timing of accepting an offer and of the finalization of the Heloc are going to be nearly overlapping.

My question is:   Is there a danger to the sale contract in going ahead with the Heloc just prior to or just after accepting an offer, OR to the new mortgage we would be seeking in the following few months?  Again, the sole purpose is to have cashflow to meet certain deadlines that will likely fall before closing on our current home. 

[Jason Wray]

Kenneth,

Here is the problem you cannot take out a HELOC on a property you are about to sell. When you sell the house the buyers bank/lender will pull title and see that there is a 2nd lien on title in the form of a HELOC. That HElOC would have to be closed and paid off if any cash was drawn. You could take out a line of credit (HELOC) but it kind of makes no sense if your going to be selling the home you will be getting the cash from the sale minus any mortgage pay offs.

You could always take out a personal loan but if you are moving you may want to do it prior because they will ask for pay stubs and do a verification of employment during and prior to close. If you going to buy a home right away you could get approved for a HELOC 85%CLTV after you close on your new home...

[Mike S.]

@Kenneth Fite

Most HELOC that are offering no closing cost will charge back you fee if you close the line before a few years.

So if you reasonably expect to sell your home in the near future it does not financially make sense to open a new line of credit or even to refinance the property.

[Dominique Pradel-Lewis]

It is not a wise decision.  Your heloc  plus all fees associated with it will become due on sale.  I got one in August 2018 and in order to avoid the fees I would have to sell after August 2021.

[Marcus Auerbach]

There are a lot of things to unpack here!

What is a trial listing? I guess I can imagine what it is, but I see a bit of a problem with offering a property for sale and then telling everyone, sorry it was just a test? Keep in mind those are familuies looking for a house, maybe out of time. Clear violation of the Realtor's code of Ethics.

Secomd the HELOC comes due at closing, so you can't take a loan against the house and then quickly sell the house and keep the loan. I don't know enough about your objective, but sounds like a bridge loan or even just an unsecured personal loan might work better for you.

[Kenneth Fite]

The idea behind listing it was to test and see if we could get close to our goal, and we did, so there’s no intention on not selling it to someone who has put in an offer. Honestly we live in a rough neighborhood, and while I wanted to get it in the market, I didn’t expect a good offer that quickly. The problem comes in with the timing of the loan. We started this process almost 2 months ago, and it got held up with an old unreleased lien through Citibank. We should have that cleared this week sometime. The need comes down to cashflow for relocation and any necessary repairs that might come up after inspection. I guess the question is, can I finalize and utilize the heloc after the house is under contract, understanding it will be paid off and will go away at the time of sale?  No intent do defraud anyone here. Just trying to work out the logistics. 

[Wayne Brooks]

@Kenneth Fite It will not affect the sale of your home in any way. It will simply be paid off from the sales proceeds just like your other mtg.

After the sale it will not affect any new loan application since it will no longer exist.  You may have some “charge back” fees when laying it off if the lender laid any type of fees up front for you or they have a minimum amount of time it must be open.

[Kenneth Fite]

@Wayne Brooks

Thanks Wayne!  That’s what I was looking for. We’re already so far in the process with the heloc, it would be easier to just go ahead with the heloc than to run credit again for a personal loan.  I just needed some feedback on if I was about to make some obvious fatal error.  I appreciate the response. 

[Raj Malyala]

Extending on the previous question. Can I take a HELOC if the property is under contract for sale? I am selling a property and it is under contract, i want to HELOC and cash out? Can i still do this when it is under contract?