HELOC denied and don't know what to do next

15 Replies

I have a few things going on. So much that I wasn't sure how to title this! 

First, I have too much credit debt (embarrassed to admit 50k) and wanted to obtain a HELOC to pay off and at least get a tax credit for the interest paid. I have been refused at two big banks because of high debt to income ratio even tho the reason I want the HELOC is to decrease my debt. They know this so I don't understand the rationale behind the denial. Plus, I have income. A good income (200k/year) but it's been a tough few years and I have been helping out my kids a lot. That should be dwindling down now. I should be able to pay this off without bank but it would take awhile and again I would like the tax credit.

Second, my mortgage is in my husband's name. Not mine. We shared the title and now the house  is mine as he passed three years ago. But, I just kept paying the mortgage. I paid off our second mortgage these past few years. (In hindsight should have paid minimum on that and paid of cc debt).

Third, I finally sold a piece of vacant property we had and received about 50k after fees and mortgage paid. Technically, didn't make any money on this as it sold for 3k less than we paid for it. But, now I have 50k in savings. 

What do I do now? I have been looking at multi-family properties in my area. A few I could pay cash for with a good cash flow and cash on cash ROI. A few I could put down payment on and need small loan (60-70k). Will I even qualify? Should I take the 50k and pay of credit cards and start from scratch? Feel like I've been doing that my whole life. This is the last time I will ever have a "chunk" of money like this. I am over 50 and want to get out of my job. I want to start developing some passive income and take control of my life and my money. Working 6 days a week is wearing me down mentally and physically. What's the point of life?

Maybe if I take part of the money for a down payment and part to pay off debt I can head in the right direction? What priority should I give to getting my primary mortgage in my name? Should I continue to pursue a HELOC for my primary residence?

I'd appreciate any and all advice. I've been a member here for over a year and enjoy reading the posts and listening to the podcasts. This could be a turning point for me and I want to do it right.

Thanks everyone for listening!

This seems to be more about personal finance than real estate. I'd suggest reading a book by someone like Dave Ramsey so you can figure out how to get your financial house in order. Having a high income is great and, I think, mandatory for you right now. Protect that. Stop helping your adult children. They'll be fine and they need to stand on their own. Attack your credit card debt then work on savings then look at investing. I'm way to financially conservative to even consider investing if I had $50k in credit card debt!

You should confirm your debt-to-income by pulling your credit report and summing up all of your documented monthly expenditures. Divide by your gross income. Seems hard to believe with 200k in income you would have DTI issues. Your minimum payments on the 50k in credit card debt are probably a mandated 3 pct per month, or 1,500. Add back PITI on your primary of say 2,000, and interest payments in a 50k HELOC of say 300, and your DTI is only around 20 pct on 200k of income. Where are the other expenses coming from the bank is considering? Are the banks including your primary residence expense in your obligations, even though the mortgage presumably is not appearing on your credit report?

Maybe you have loan-to-value (LTV) issues and the bank messaged the wrong denial reason. How much equity do you have? Will it support a 50k HELOC? Try a local credit union-- I have found many that go to 90 or 100 pct of LTV.

I wouldn't put too much value in the deductible interest of using a HELOC to pay the 50k in credit card debt. If the interest on the heloc is 4 pct the value of the tax shield is only 500 dollars, assuming your effective tax rate is around 25pct. (50k x 4 pct x tax rate-- represents your dollar reduction in tax liability on ordinary income)

If I understand correctly, you have 50k in cc debt, and were turned down for a HELOC to consolidate that debt, but you now have 50k in cash. Did you have this cash when you applied for the HELOC?

Here is the option I would consider:

1. Pay off all cc debt with cash

2. Apply for HELOC when debt reduction is reflected on credit reports

3. Simultaneously apply for increases in the lines of credit on your credit cards, and apply for more credit cards.

Since you are applying for mortgages/HELOCS, you can also apply for more credit via cards. Applying for a lot at one time reduces the impact on your credit, and may allow you to increase your available credit substantially.

I would check with the banks to see if you would be approved for the HELOC once you pay the cards off.

Very simply, you were turned down for the HELOC because despite what people say, they don't do what they intend to do. In other words, the bank has no guarantee that you will actually use that money to pay down CC debt.

Sorry to get a bit harsh.  But halfway reading your post, I thought to myself, "is this person serious??"  I'll just summarize your points:

- Tried to get HELOC to pay off CC debt - failed

- Made a mistake of paying off mortgage instead of CC debt

- I came into some money selling off a property....

Anyone reading this would think "she's going to use it to pay off CC debt". But all of a sudden "maybe I should do something else with the money, like buy investment property..." You essentially just confirmed that the banks were right in turning you down for a HELOC.

Money is fungible. Meaning it does not matter if you got $50K from HELOC, or $50K from selling a property. If you couldn't secure the $50K from a HELOC, but came into $50K from selling property, the original intention of paying CC debt shouldn't change.

Paying down high interest debt is a guaranteed win. If you pay off $50K debt that is accruing at 20%, you are essentially earning a ROI of 20% on your $50K. If you use that $50K to buy investment property, can you get an ROI of 20% (after tax) guaranteed? If your ROI on your investment property is 15%, but your CC debt is accruing at 20%, you are losing wealth. Not to mention if the investment property actually loses money, now you create even a bigger hole for yourself. If paying off debt to you is "starting from scratch," I think buying an investment property in your situation is "digging a hole and walking across it on a tightrope".

Be smart and pay off the debt.  And if you have $200K income, it should be no issue rebudgeting and redefining goals, $50K should be very easily saved within 1 year.  

I just thought of putting it this way:

Hypothetically, let's say you have no CC debt and no extra $50K.  Would you now take $50K of CC debt (at whatever high interest rate) and use that to buy investment property?  Essentially you will be funding a long term buy and hold using CC debt.  

If your answer to the above example is "no", then this is the exact same scenario as what you are currently in - financially speaking.   I understand psychologically it doesn't feel that way.

@

Account Closed yes they are taking into consideration the mortgage even though it is not in my name. Should I even worry about that now? I will look into my credit report to see what they are seeing. But, you are right also in that I may not mean much by way of a tax credit. I had an appraisal done a couple months ago that showed a 120k equity on a 300k loan. But, that has not been the case at the other banks. I'm not even sure what it is but the LTV is not enough.

Thank you so much for your input.

Originally posted by @Lynn Maher :

I have a few things going on. So much that I wasn't sure how to title this! 

First, I have too much credit debt (embarrassed to admit 50k) and wanted to obtain a HELOC to pay off and at least get a tax credit for the interest paid. I have been refused at two big banks because of high debt to income ratio even tho the reason I want the HELOC is to decrease my debt. They know this so I don't understand the rationale behind the denial. Plus, I have income. A good income (200k/year) but it's been a tough few years and I have been helping out my kids a lot. That should be dwindling down now. I should be able to pay this off without bank but it would take awhile and again I would like the tax credit.

Second, my mortgage is in my husband's name. Not mine. We shared the title and now the house  is mine as he passed three years ago. But, I just kept paying the mortgage. I paid off our second mortgage these past few years. (In hindsight should have paid minimum on that and paid of cc debt).

Third, I finally sold a piece of vacant property we had and received about 50k after fees and mortgage paid. Technically, didn't make any money on this as it sold for 3k less than we paid for it. But, now I have 50k in savings. 

What do I do now? I have been looking at multi-family properties in my area. A few I could pay cash for with a good cash flow and cash on cash ROI. A few I could put down payment on and need small loan (60-70k). Will I even qualify? Should I take the 50k and pay of credit cards and start from scratch? Feel like I've been doing that my whole life. This is the last time I will ever have a "chunk" of money like this. I am over 50 and want to get out of my job. I want to start developing some passive income and take control of my life and my money. Working 6 days a week is wearing me down mentally and physically. What's the point of life?

Maybe if I take part of the money for a down payment and part to pay off debt I can head in the right direction? What priority should I give to getting my primary mortgage in my name? Should I continue to pursue a HELOC for my primary residence?

I'd appreciate any and all advice. I've been a member here for over a year and enjoy reading the posts and listening to the podcasts. This could be a turning point for me and I want to do it right.

Thanks everyone for listening!

Where do you live? Without knowing your specific personal situation, if you earn $200k/year, even with 5 kids you shouldn't have a problem to pay off your CC debt in a years time. That should be your #1 priority! Getting a HELOC will only place you further in debt, and that's exactly the bank's rationale.

I'm not sure if my tags are working but I will try again. 

Thank you @Wilson Churchill I appreciate your advice. 

I guess I look like a moron here. And, I understand what you say @Daniel Chang but I am one of those people who does what they say they will. So, I will heed everyone's input and pay off some debt

Thank you

@Andrey Y. I live in the suburbs of Chicago. My kids aren't at home but have needed assistance. It's been a difficult three years. The HELOC wasn't to add to the debt it was to replace the debt. As Account Closed pointed out it probably wouldn't have made much of a difference, tax-wise. I work as a 1099 and get taxed heavily. Oh well. It is what it is. 

Thanks!

@Lynn Maher   Congratulations on taking the very important step of reaching out and seeking guidance!  Everyone here has provided valuable insight that should be valuable to you.  

I will throw my .02 cents in here.  I would pay off the cc debt first and foremost, then you can build a better credit profile.  Go to a bank and get preapproved for a loan for investment property.  This will give you an idea of what you need to make your first investment.  

With your income from your job, you should be able to save up money for the down payment for your first investment purchase.  From there, assuming you make a smart purchase, you could leverage that cash flow along with future savings from your day job to keep buying new properties.  After you get a few it begins to snowball if you are disciplines and diligent.

Best of luck!!

James Ihssen

Originally posted by @Lynn Maher :

@Andrey Y. I live in the suburbs of Chicago. My kids aren't at home but have needed assistance. It's been a difficult three years. The HELOC wasn't to add to the debt it was to replace the debt. As Account Closed pointed out it probably wouldn't have made much of a difference, tax-wise. I work as a 1099 and get taxed heavily. Oh well. It is what it is. 

Thanks!

 Ever considered moving overseas to save more cash?

You can live very well on $500/month in Thailand, and still support your kids the same remotely. I'm not kidding. Instead of one year, you can cut down the time needed to pay off your credit card from a year to 3-6 months!

Look advice from the Bogleheads. 

https://www.bogleheads.org/forum/viewforum.php?f=2

That site is great for personal finance questions. 

Best,