Personal financial hardship - HELOC vs Home Equity Loan?

Question

I was recently laid off and have accumulated about $20,000 in credit card debt, primarily from paying last year's property taxes and covering a few months of living expenses. I own a house with approximately $400,000 in equity, and I'm considering tapping into this equity while I search for a new job. Until now, I had a great credit score, but I'm concerned that my increased debt might affect my ability to obtain a HELOC or a Home Equity Loan.

A lender approached me, claiming they could help me secure a HELOC, but the encounter felt coincidental, making me feel vulnerable. I've had negative experiences with a bad general contractor and a non-paying renter (leading to an eviction), so I'm being extra cautious in selecting the right lender this time.

Could anyone recommend a trustworthy lender in the Los Angeles area who can guide me through this difficult time? Also, which option would make sense for me: a HELOC or a Home Equity Loan?

I appreciate any input from fellow BPers. Thank you.

Chris Seveney · Answer

@Joyce Kim

HELOC and home equity loan are not the same

Equity line of credit is a line of credit that let’s you withdraw up to specific amount and you can take less and pay interest on what you draw

For example if you had a $50k line of credit you may choose to use $20k of it and it is usually ten years where you can pay it off and draw more

A home equity loan is a second mortgage which is a fixed amount and paid off over a period of time

HELOC is better in my opinion but if you have no income it will be difficult to get approved even with the equity you have

Common misconception people have is if you have equity you can just take it, that’s not the case the bank also wants to make sure you have the ability to repay it.

Seo Hui Han · Answer

Sorry, all the other posters are right.  There is a difference between a HELOC and a Home Equity Loan, my mistake.  And they're also correct about the difficulty in obtaining either without current income.

Rick Albert · Answer

I'm not a financial advisor but I don't see how accruing more debt is going to help your situation. The only way it would make sense is if you use the HELOC to convert your garage into an ADU for the steady income or buy out of state rentals "cash". The other maybe is to pay off the credit card, but I would end it there. I've been in massive debt before with a house remodel, addition, and ADU conversion. It isn't fun.

Also keep in mind that with HELOCs there are loan to value limitations. So if your house is worth $1M and you have a mortgage of $600,000, yes you have $400,000 in equity, but a lender may only lend you another $200,000 (for a total of 80% loan to value).

This can be a very slippery slope into more problems. Consider getting a part time job if you can't find anything. There are new businesses coming into Granada Hills (over off of Zelzah and Chatsworth is where the bulk of the restaurants and shops are as you probably know or maybe go to the Vineyards in Porter Ranch).

I am very familiar with Granada Hills. Happy to assist where I can.

Patrick Roberts · Answer

From your post, it seems like you're not working right now. It's also not clear if this house is your primary or an investment property. Getting a Heloc or Heloan secured against your primary residence is going to be extremely difficult without income/ability to repay. If this is an investment property that's leased and performing, DSCR cashout is probably the simplest path.

Carlos Valencia · Answer

Hi Joyce,

Sorry to hear of your current financial situation. Its not easy to be in that position and can be very stressful. Based on your current scenario you would need to qualify to be able to get a HELOC on your home. This requires you to have consistent income because at the end of the day this is a loan you have to pay back. The way the bank looks at your qualification is by looking at your total liabilities including your monthly mortgage payment plus your future payment for the Heloc. If you cannot qualify based on your monthly income to add the Heloc then you wont be able to pull that money out. If your getting unemployment you can use that as your income but again the question is would that be enough income to qualify. Once you get your new job and the lenders reviews your income and sees you can qualify then yes now you can get that Heloc. Just for future advise if you have equity in your home its best to get a heloc ahead of time and just have that credit line open similar to a credit card so you can tap in to it whenever needed weather it be to pay off debt, or invest in your next property or for family emergency. Hope this helps understand more how the process of getting a Heloc works. Last thing I almost forgot to mentioned that lenders can lend you between 75-90% of your loan to value. That is another factor you need to keep in mind. Make sure you have enough equity to pull out compared to how much left is owed on your property. You stated you have about 400k in equity but how much do you still owe?

@Albert Bui @Matthew Kwan

John Mason · Answer

Joyce Kim research Hometap

Scott Mac · Answer

Can an unemployed person take out a bank loan??

Don't they check how much you can pay back based on your income??

Joyce Kim · Answer

Thank you so much for the offer. I am not a developer per se but I was in tech field as a project manager/ business consultant. I would love to meet even if it’s for a short coffee chat. I will dm you. :)

Joel Bongco · Answer

Aloha Joyce, I agree with the comments above.  Unless you have other sources of income, its going to be difficult to qualify for a HELOC.   I would hyper focus on finding a job in your field.   I would even entertain a temporary/contract job to show income.   Are you tech?  If yes, I can help you from an employment perspective.  I live in Hawaii and Los Angeles and will be in LA in two weeks if you want to meet up and process a plan B.   Mahalo,  Joel

Personal financial hardship - HELOC vs Home Equity Loan?

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