Question:
I live in Illinois and I'm trying to get a Home equity line of credit to do some needed work on my house. After dealing with my mortgage company on the phone, everything looked good, and then today they informed me that the state of Illinois no longer allows "lines of credit secured by real estate." When I asked him, he confirmed that it is the state, not the company's rule. He then attempted to sell me a 40 year mortgage at 9.5% interest, which would put me at around 95% of my equity. Right now, I'm at 6.5% and about 65% equity. (needless to say, the answer will be a NO). My credit is decent and I have a good debt to income ratio. I don't beleive what he said about Illinois not allowing them and I can't find any information to confirm it. Is this true? Thanks
Answers:
Dump your broker. Start calling around to local banks and credit unions. Find your own HELOC.
Brokers make little to nothing on HELOC's. We really offer them as a necessary function, but ideally when we're doing a first mortgage too, where we can make a decent income from.
Now, is that a 40 year first mortgage you're being offered at 9.5%? That's not terrible for a 95% HELOC, as it would only be Prime + 1.25%, but it sucks as a first mortgage.
Get rid of this guy.
Well, here is what they are not telling you.
It's not that Illinois doesn't allow them, it's that the state most likely changed the laws that put so many restrictions on how a HELOC has to be written, that it no longer makes it profitable for the bank, as well as may too-easily open doors for a bank to be accused of predatory lending.
In my career, I have seen 2nd loans stopped in New Jersey, Utah, Texas, Florida, etc...they always return, but when the laws change, sometimes the legal department will advise a bank to stop underwriting them temporarily until they can get a better idea of how the legalities work, and how to write a legal loan that you don't get sued over...and then educate employees accordingly, build it into our automated underwriting system, etc.
Does that sound like alot? Yup..and most people don't understand it...that is why they blame it on the state, b/c it's easier.
Just wait it out...give it about 6 months and lenders will start offering something comparable.
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