A HELOC (home equity line of credit) is considered a lien against the home, just like a primary mortgage and a home equity loan. The value of the HELOC lien is the amount currently owed on the line of credit. For example, if you have a HELOC with a loan limit of $30,000 and you currently have a borrowed balance of $20,000, the current lien value would be the balance owed plus any HELOC prepayment penalties or other fees.
Because your house is collateral for the HELOC you cannot roll your HELOC over to a mortgage for a different property
Estimating Your Total Lien Holder Expense
To determine whether your HELOC will create an issue with selling your home you will need to calculate the total amount of money owed to lien holders and compare that against the proceeds you expect to get from the sale of the house. HELOC lenders will expect to be paid in full when the sale closes.
To estimate the total lien expense against your home add up the following:
- Principal balance left on your primary mortgage
- Add any fees associated with early payoff of your primary mortgage
- Add any principal balances left on any outstanding Home Equity Loans
- Add any fees associated with early payoff of your Home Equity Loan
- Add any amount due on your HELOC
- Add any fees associated with the early payoff of your HELOC
If the total lien expense is less than the expected proceeds from the sale of the house then you may be able to sell your home without any issues. Keep in mind that proceeds from the sale of the house also have to cover realtor fees, closing costs and other standard expenses incurred when selling a house.
Check with your lien holders to get the actual payoff costs.
Negative Equity Home Sale
If the total lien expense is higher than the current market value of the home, then there is ‘negative equity’ in the home and your mortgage is considered underwater. In this case you would generally have a hard time selling your home whether or not you have a HELOC. If you find yourself in this situation and you don’t have to sell your home, delay selling your house until you have positive equity.
If you have to sell your home or get out from under your mortgage debt you could consider:
- Negotiating a short sale with your lien holders
- Allowing the mortgage to go into foreclosure
- Evaluating options for second mortgage debt relief
If you choose any of these options make sure to talk with an expert in the area of short sales, foreclosures or second mortgage debt relief to fully understand your options and the implications of choosing one of these options.
If you find yourself struggling to make payments on your home equity loan or HELOC, or you are already in foreclosure for your first mortgage, speak with a PCS Debt Relief advisor as soon as possible to find out what your options are.