Get a Line of Credit Before You Need It!
I just spoke with a friend who had been turned down for a line of credit, secured by her fully paid off house, due to low and sporadic income. I find it hard to believe that a bank wouldn't love to repossess an entire house to recover half its value, but it goes to show that banks do not think the same as us mere mortals.
Given my plans to change careers, I have now decided to get a line of credit approved against my house right away. If I never use it, then great. But I don't want to be caught making some awkward decisions that could have been avoided with some forethought.
It also makes me wonder what else should be done while my income looks better. Any suggestions or ideas would be appreciated!
7 comments:
I think the HELOC is the main thing.
There is usually a legal fee involved in setting it up but you should negotiate to get this fee lowered.
Mike
I agree with Fourpillars. Get the bigger HELOC possible while you have a good income. I'm actually writing a series of post about banks perceptions:
http://www.thefinancialblogger.com/category/the-banks-and-you/
you might want to look into it.
For your friend, he should be able to get a 50% home equity line of credit but not much than that. Banks are not in the property business, they are not interested of getting house back, only their payments ;-)
Cheers,
FB.
I know that CIBC will waive the legal fees if you get a HELOC greater than $25k.
Best of luck!
FT
Banks need to think a little more creatively! It is so frustrating to hear about people like your friend, turned down by banks who have no ability to stretch their thinking. Good luck with all your new adventures switching careers!
I agree with FB when he says that the bank are not interested in getting the house.
The last thing a bank wants is to have to seize your house. When it comes down to that, the bank looses money in many ways -- the house is usually sold below market value, there are costs involved in selling it, and it also looses on *your* future business (as it is unlikely you'll stay with them after such a painful process).
It is always easier to get something you need from your bank when you have built a good relationship with someone there.
Cheers,
Frog
Planning is about doing things beforehand. Other examples include preventative maintenance (e.g., health, vehicle, home), buying insurance, setting up an emergency fund, writing a Will, etc.
And even learning new skills to change careers while your current job is hot ;)
I would try to get an unsecured line of credit as well- there are no legal fees involved but the amount of the LOC will be modest (probably under $30K).
If you already haven't done so, over-contribute to your RSP while you are still cash flow rich.
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