Trying to Be Smart
January 12, 2013 11:16 AM   Subscribe

Unusual combination of pending unemployment, upcoming (home equity and car) loan needs and a long boat ride requires the mefi thinktank for logistical scenarios and a bit of education about said loans. We are looking for the smartest approach to the coming year and could use more brains in the mix.

The facts:
• Our full-time jobs are ending simultaneously in two months (all income will stop, unemployment is unlikely and we will owe $400/mo for the high-deductible health plan);
• We are in a (currently) decent financial position with about $30k liquid;
• We have a lot of equity in our home (we do not currently live there; mortgage paid monthly by renters);
• We face about $40k worth of critical home maintenance projects that contractors will do in the spring (waiting is not an option);
• We need to replace two unreliable (though paid for) vehicles with one new-ish and dependable vehicle (perhaps $20k);
• We have excellent credit.

The unusual part:
After our jobs end, we expect to be moving/traveling on a boat for six months, after which we will stop and search for work and need a dependable vehicle and an inexpensive rental for a couple of years. Because we know what is around the bend, we are thinking we need to apply NOW for a home equity loan for the home maintenance projects and a vehicle loan for the car BEFORE our jobs end in a couple of months or else we won't qualify. Of course the prospect of acquiring new debt is a bit daunting in the face of unemployment, but we feel fairly confident in our ability to cover our expenses and to find at least enough work to pay the bills before our savings runs dangerously low.

Is it ever possible to get a car loan and not actually make the purchase for six months? (If we buy the car now, we’ll have to store it for the summer, fly back to get it and then drive it 2,500 miles--pros: it can hold a bunch of our stuff and could be an adventure, cons: the cost of the flights back, plus all that gas, food and lodging while unemployed--and winter will be upon us). Is there any sort of dealer program that permits buying a car (at our destination) but not picking it up for six months? That just doesn't seem wise... or is it at all likely we'd qualify for an auto loan after being unemployed for six months? (Could we use the equity in our home as collateral? If so, would this affect the interest rate?).

We have never experienced the intricacies of home equity loans or lines of credit. We have just our one home, but we don’t live in it right now. Where is the best sort of place to start looking for a loan to cover the $40k in home maintenance projects? (credit union, local bank, internet?). Is there any way to avoid the higher rate that seems typical for non-owner-occupied homes? (Any argument to be made, for instance, that this is our only home and not your typical income property?). Is there any way or reason to combine the home and auto loans? and would we even want to if we could? (I see home equity loans around 6% and cars at 3%, so there’s an obvious drawback…). Are there better or other kinds of loans to be had if we’ve paid more than 80% of our mortgage?

Now a question that probably shows I have no idea what I'm talking about: If we have just $40k left on the note of our home (at a rate that won't get any lower), is there anything to consider around refinancing, with all above in mind, that would address these concerns?

Any other thoughts or ideas?
posted by anonymous to Work & Money (7 answers total) 2 users marked this as a favorite
If you apply now for a line of credit, instead of a lump sum loan, secured by your income property, then you don't have to draw against it until you need to buy things, whether its the home improvements or the car.

I think since you know now, you could try brokers and banks to find the best rate for your purposes., keeping in mind that you don't want to formally apply from too many places.

Finally, not to derail, I would definitely challenge the assumption that you'll have to buy a $20k car before you have jobs in your new place, but that's a function of my living in urban areas where walking, biking and transit are all options.
posted by Heart_on_Sleeve at 11:43 AM on January 12, 2013

Maybe you live somewhere with very high used car prices (note: I live in an area with incredibly high used car prices - but still think that is too much money) but spending $20,000 on a used car when you will not have income or use for the car seems really illogical to me. Same with $40,000 in home maintenance. My house is over a hundred years old and I am having a hard time coming up with $40,000 worth of projects in my mind without wandering into "oh that would be a nice extra" unless you are talking about the kind of project (like foundation problems) that would actually prevent a lender from financing a potential falling down shack, or getting adequate insurance (which again, may stop a lender). I am calculating your house as worth $200,000 according to your figures. To get a good rate on a refi you need to keep $40,000 as equity (as a minimum), plus the existing $40,000 note, the necessary repairs of $40,000 may be bringing the value down by an equivilant amount so you may have $80,000 in equity at most. Spending one quarter of that on a parked car seems dangerous without a guaranteed income. $30,000 in savings can disappear pretty fast with an emergency or two.

Buying a used car (that depreciates every day) and storing it for six months makes no financial sense. Rather than storing stuff in the car, see if there is unused space in the house you own or rent a storage locker.

A lot of your plans are very optimistic - you won't need to use the high deductible health plan, your renters won't suddenly leave, the $40,000 repairs won't double overnight etc. You might want to run you plans past someone with a bit of pessimism.

You are far braver than me! I could never enjoy six months unpaid travel (followed by six to twelve months unpaid job searching) with such big financial responsiblities hanging over my head. I hope it all works out for you.
posted by saucysault at 11:52 AM on January 12, 2013 [1 favorite]

I think you will need to clarify some things to get some quality advice. Are you expecting your $30k of savings to cover your living expenses, your moorage fees, payment on any home equity loan, and car payment for six months? (Or two years? How much of your rental do you want to pre-pay?) Why a $20k car instead of a $5k car?

You can't get a car loan unsecured by a car. But, generally, it's not that hard to get a car loan. You'd lose money buying a car you don't need (on interest, on storing the car, insurance) -- wait until you are employed again.

$20k + $40k in loans on no income seems like a really bad idea in addition to the mortgage. You have cash on hand but it doesn't seem like enough to me. If your renter leaves, if you have a hard time securing work at the end of the boat trip, if something goes wrong with the house while you are on the boat trip ... it just seems really dicey. So dicey I am nervous for you, rather than excited for your trip!
posted by stowaway at 11:55 AM on January 12, 2013

Any reason why you need to take out a loan for a dependable car?

Why not buy a used car for $5000 in cash, and avoid creating yet one more monthly payment to make for years and years.
posted by KokuRyu at 11:57 AM on January 12, 2013

Another thing - are you moving permanently to somewhere far from where you own your house? Why not just sell it?
posted by stowaway at 11:59 AM on January 12, 2013 [1 favorite]

Postpone the boat trip and get new jobs. If you have $30k liquid and need $40k in repairs to the home to continue renting it to cover the mortgage, you have a $10k hole.

Also, they will very much ask you if you will continue to keep your jobs when you try to refi the house.
posted by Ironmouth at 12:22 PM on January 12, 2013 [2 favorites]

Securing a loan now, using your current sources of income without indicating that you know that this income will disappear seems a little sketchy. When you report income, it's usually with an expectation that the income will continue. Be careful if you sign a document or make a statement concerning your future income. Also note that unexpectedly becoming unemployed is very different from knowing that you will lose your job at some future date.
posted by NoDef at 4:55 PM on January 12, 2013

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