Interesting HELOC question.....

[Jacob A.]

This is a pretty specific question and hopefully theres a lender out there that can help me out. I'll obviously be talking with a lender here in town about it at some point but here's the scenario. I got a loan from my parents to buy my house in 2010. They are extremely lenient with me on payments as I am just paying interest only and paying principal whenever I can. My questions is this.... how much can I take out with a HELOC? As far as the bank is concerned I own the property free and clear, the deed is in my name and I owe no financial institution any money. However, realistically I only have about 25-30% equity in my home technically because I still owe my parents on the original note. If I explained to the bank that my parents would be willing to not accept payments for a few months would they allow me to take a loan on the full value of the home?

[Glen Sonnenberg]

Given that the house is not securing this loan (as it is of a personal nature) then to be honest you should disclose the loan to the bank as a personal loan. The bank will take that into account when they determine how much you can borrow. On a personal note, if your intention is to borrow as much as you can against the house, I would suggest you use a chunk of that to make a principle payment to your parents. They were kind enough to lend you the money in the first place and deserve to have the note paid down (at least some) when you're borrowing against their "collateral".