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How to Borrow Against Equity After Buying a Home
Some home buyers want to borrow against equity after closing for improvements.
Do not make the mistake of believing it is a slam dunk to borrow against home equity after buying a home or that obtaining a home equity loan will be the same as getting a mortgage to buy. Many home owners today are planning to make improvements right after closing. When sellers ask me if they should hang on to their home and improve it, or whether it makes more sense to buy a new home and fix up that home, well, everybody’s situation is unique.
For starters, many sellers who ask that question don’t really like their own home. There might be something about the location, configuration or style they don’t like, too. That can be resolved by buying a new home, even if that new home doesn’t meet all criteria and after closing, deciding to borrow against equity to fix it up. The question is why install a new HVAC, roof and siding at your old house when those costs will NOT be returned in whole upon resale? You don’t accumulate equity just because you have fixed a leaky pipe.
You may as well fix up your new home. At least you will be there a while to enjoy it. And while you’re making maintenance repairs, why not remodel the kitchen to your tastes or add a swimming pool? You can probably get a home equity line of credit if you borrow against your equity through a local credit union. The difficulty with this arrangement, though, is trying to obtain that line of credit immediately after closing.
A little known thing happens during escrow that most people have never considered. When your escrow closes, the existing loans owed against the property by the previous seller are not automatically lifted from the property. Escrow closes on a promise from the existing lenders that they will each issue a reconveyance after closing and record in the public records. And therein lies the difficulty.
A new homeowner cannot borrow against equity until those liens have been reconveyed. If the old lender(s) drag feet, it can take a month or more to remove those liens. The solution is to obtain a letter from the lenders stating the loan will be removed, but even that can absorb precious time to obtain. So it’s not instantaneous that many sellers can immediately get a home equity line of credit. Take that little quirk into consideration before beginning your home improvement projects after closing.
Tip: Before remodeling your home, check to make sure the previous loans recorded against your new home have been released. If you need help buying or selling a home in Sacramento, call top producer Elizabeth Weintraub at 916.233.6759.
New Twist for Sacramento Short Sales With a Second Mortgage
Before I get started, let me say that I know agents in Sacramento who will refuse to work on short sales with a second mortgage. Yeah, that’s ridiculous. Sure, it’ s a little bit more work with two loans, and second mortgages on a short sale can throw a monkey wrench into negotiations if they are hard-money loans, but that’s the job of a Sacramento short sale agent, to make it work.
I used to believe that only a lawyer could negotiate certain types of Sacramento short sales but after doing them for almost 8 years, I don’t believe that anymore. In fact, many lawyers hire an assistant or clerk to actually process the short sale. There seems to be little hands-on involvement. Because of the volume I do, and my personal interaction, I hear new developments often before they become mainstream. That’s a benefit to hiring an experienced Sacramento short sale agent to do your short sale and not some recently licensed agent who sat through an online class or a lawyer who pawns off the work.
The new development with the second mortgages secured to underwater homes is some of them are vanishing. Yes, poof, gone. The seller no longer owes the debt. This is done without the seller’s approval, too. The bank simply releases the loan and forgives the debt.
At first I thought maybe they were releasing the loan but not reconveying the mortgage, as what happens in a bankruptcy before a short sale. In a bankruptcy, the debt is discharged and the seller is released from personal liability. However, the loan remains secured to the property in a bankruptcy and the seller remains in title. Some sellers end up filing a Chapter 7 thinking this will get rid of the house, and it doesn’t. Not only that, but some sellers might be better off just doing a short sale and forgetting about a Chapter 7, especially if their only debt is the house.
This is a good place to acknowledge that I have never heard a bankruptcy lawyer say to a qualifying client: don’t do a bankruptcy. That’s like asking a Sacramento real estate agent if you should sell your house or asking a hairdresser if you should cut your hair.
Why would a bank release a second mortgage? Partly due to the National Mortgage Settlement Act and a few other lawsuit settlements. You might wonder why do they care about hanging on to a worthless piece of paper that has no security anyway? So investors can question their assets? Yet, I’m still a bit amazed that banks are issuing reconveyances and letting sellers go.
In some cases, it might mean that the seller won’t even have to resort to a short sale if prices continue to go up. That’s pretty good news for Sacramento sellers. It also makes negotiating the short sale quite a bit easier when there’s only one lender. But it’s still not impossible to work on short sales with a second mortgage, and I do it all the time.
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