Money question. I need $82,500 within 30 days. Home equity line/loan or refinance or .... something else?

January 26, 2009 5:52 PM

Money question. I need $82,500 within 30 days. Home equity line/loan or refinance or .... something else?

Background ... this is a charitable situation. My (very low income) 74 year old mother-in-law lost her house in a divorce settlement last week. She cannot qualify or afford to purchase a place to live. Rentals in her price range are (very) undesirable. I have been compelled to purchase a home that mother-in-law can then rent from me. I found a place over the weekend, offered on it, and it was accepted. I now need to have $82,500 cash to close it in 30 days or I will lose it.

For reasons I won't go into here, I very much do not want to traditionally mortgage this house ... that would require ~25% upfront money. So, my options, as I see it, are to draw a home equity line/loan or to refinance my house. Problem: refinancing volume is causing delays that may exceed my 30 day timeline. However, I've been told that I can draw a home equity line/loan within 7 to 10 days. This seems very wise to me, because I can draw that and then quickly do a refinance to satisfy the home equity line/loan.

I know that I am very qualified to get a loan or refinance; no problems with that. But my concerns are as follows: (1) I've been told by 2 different bank people that it is very common to pay off a home equity line by refinancing. Are they telling me the truth? ... and (2) I'm wondering if there might be some mysterious other way to get ahold of $82,500 temporarily. Taking into account the 30 day timeline, would you draw a home equity line/loan or do something else? Thanks!

posted by Dave. to work & money (10 comments total)

Why not get a home equity loan for the 25% down, and then a straight mortgage on the rest? If you then qualify to refi, great. But if you don't, you aren't stuck trying to pay back a short term $82k loan.
posted by gjc at 6:06 PM on January 26

You're not likely to get better terms on short term money than with a home loan of some type so I think you're on the right track.

I've paid off a line with a refi and it did not seem at all out of the ordinary to anyone involved - nor were there any problems with it. One thing to check on is that they do not automatically close the line all the time when you do refi, so make sure you close it yourself if you don't want it anymore. The line itself was very painless to get and involved minimal upfront fees.

In addition you can probably get a line with a rate roughly comparable to what you would get in a refinance so there shouldn't be any rush to refi.
posted by true at 6:49 PM on January 26

The keys to your situation are how much your own house is worth (reasonably, keeping in mind the current poor state of the housing market) and how much you owe on it. You say that you are "very qualified to get a loan or refinance." Do you mean against your home? The credit crisis has affected all markets - it is probably very hard to get a personal loan right now. When you say that you are "very qualified to get a loan or refinance," hopefully you mean that you have good credit and have significant equity in your house (even considering a price 10-20% lower or more than it would have been a year ago.

If that's the case, the best approach for you is almost certainly to quickly do a home equity line, assuming that you can qualify by current standards. It will likely be at a higher, probably floating rate than your primary mortgage, but it's still deductible.

The answers to your questions:

(1) Yes, that is common, but you still are going to owe that money one way or the other. In the booming housing market, it was easy to close out home equity lines by refinancing based on a new first mortgage of 80% or less loan to (appraised) value. With dropping housing prices and drastically changed underwriting policies, that's gone forever unless you have significant equity in your home.

(2) No, there is no legitimate way. All the ways you could easily do so are either illegal or very expensive (i.e. very high interest).
posted by iknowizbirfmark at 7:20 PM on January 26

I would be wary of borrowing that money in any way but a home equity or mortgage of some kind. If you hit any surprises, you wouldn't want to end up paying higher interest any longer than you have to, and you wouldn't want someone threatening to break your kneecaps either. Stick with the refinance/home equity strategy.

As for the question of paying off home equity with refinancing, that's just covering one debt by reorganizing another. I think "very common" might be a stretch, but it's a strategy if you don't have the extra income to pay down your home equity or if your house increases in value. Given the slump of the housing market, you're probably not going to get any bonus equity anytime soon, so you don't want to get upside down in the whole thing if you can avoid it.
posted by JuiceBoxHero at 7:24 PM on January 26

I'd vote "do something else", as in, subsidize her rent until you can come up with a better solution and don't have to scrambled to mortgage yourself to the hilt to buy a house you don't need.
posted by electroboy at 8:21 PM on January 26 [3 favorites]

Even if you get the home equity line of credit and successfully refinance to pay it off, you aren't home free, because we live in unusual times. The housing market hasn't bottomed out yet. Suppose the market value of your house falls below your new, $82,500-larger mortgage. That's not a good position to be in, especially if you should lose your job and can't make the mortgage payments. Think about the risk to yourself before you rush into this.
posted by exphysicist345 at 9:59 PM on January 26

If you have a sizable IRA, you can borrow money from it for 60 days. For example, see this. That should give you a cushion on your refi.

Now the 60 days is a very hard deadline, and if you don't pay it back by then, you'll be charged early withdrawal penalties and won't be able to put the money back into the IRA. I don't know your financial and family situation enough to advise you whether it's a good idea, but this is just one option in the arsenal.
posted by bsdfish at 11:14 PM on January 26

I would recommend paying the rent yourself too. If your mother-in-law's situation changes, and she can no longer live in the house, now you have a house you have to get rid of in a bad market. You may not get what you paid for it. Now, granted, renting will be more expensive and you don't get a house in exchange. But, you do get someone else taking care of things like maintenance (if something goes wrong, your 74 year old mother-in-law is unlikely to be able to fix it; you will have to come there or pay for someone to do it for her). I also can't see how she lives in an area where houses can be bought for 80k but nice rentals aren't available for cheap. Is the house nice? Will it be hard/expensive for her to maintain?
posted by Deathalicious at 12:19 AM on January 27

Seconding paying part of the rent for a better apartment above what she can afford. I suggest you be willing to pay 55% of cost, so that she has money left over for groceries and other costs. I think this is a good option for the long-term, especially if she will have to join an assisted-living community in the next decade.
posted by parmanparman at 9:32 AM on January 27

Greetings all and thanks for the wisdom. From a few comments, I gather that the idea of grabbing a home equity line and then refi'ing is an accepted practice. I most likely will execute that plan later this week.

Regarding some of the other comments:

"Grabbing money from my IRA". I explored tapping my 401k but that is not workable.

"Subsidizing or paying her rent". I considered doing this, but that is a very undesirable option, since that would essentially be me paying for her to live.

"Borrow 25% for down payment, traditionally mortgage the rest". If I did this, I would lose the opportunity to refi my primary house loan to a significantly reduced rate.

And in regards to concerns about our economy and the housing market. I've got another complication that I did not mention. There is also a low income sister-in-law that lives with the mother-in-law. My plan is to install both of them into a home that they can afford to rent from me. The ultimate plan is for mother-in-law to pass away, causing a ~$20k life insurance payment that the sister-in-law will then use to hopefully purchase the property from me. I know I'm buying into a crashed (crashing) market, but am comforted to know that I have found what I am 99% certain is a house that will increase significantly in value. Basically, I grabbed it for $82,500. Its in a 55+ community and the next higher price in the neighborhood is $109k (and it is a smaller place to boot). There are other factors involved, but I think I'm going to roll the dice and hopefully end up winning on this deal (where winning equals housing family members, not necessarily equaling profit.)

Thanks again!
posted by Dave. at 1:05 PM on January 27