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Thread: How do banks determine home value for a HELOC?

  1. #1
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    Default How do banks determine home value for a HELOC?

    I'm looking at consolidating some debt into a lower interest rate HELOC. But I'm curious how they determine the value of the home. Do they require an appraisal, or do one themselves?

    Also, I see that most banks require at least 20% equity to quality for a HELOC. Which is fine, but does that mean they will extend credit up to the 20% mark, or do they go beyond that point?

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    Standard practice is, that Banks will order a third party full appraisal. The customer typically is responsible for this cost, anywhere between $250-$350.

    The 20% Equity is the minimum "downpayment" requirement to be approved for a HELOC. This means you are able to loan up to 80% of the value of your home. So, three major things are important when considering what your secured limits are:

    1) The value of your home
    2) Your income
    3) Your current outstanding debts

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    When I applied for mine, which was a couple of years ago, the lady asked me what I thought my house was worth. She then ordered an appraisal which I paid for ($250 range) and they agreed with my estimation and set the loan for 80% of the value. It is a great idea for debt consolidation, but a person needs to ensure they maintain their fiscal responsibility as there is a lot of money available at times, and it can be very tempting. Good luck with it.

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    With an appraisal you can usually go up to 80% of the value - some banks will let you use your income tax assessment and go up to 60% of the value on there.

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    The banks can pay for everything to setup the heloc. They can take care of the legal docs and home appraisal. You are offering up your home as collatera and it's a secured loan so be sure to grind them on it. I'm willing to bet 80% isn't common, more like 65% unless you have excellent credit and high salary. Also, to reduce their exposure to risk they might under appraise your property.
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    If you aren't looking for the maximum (80%) they likely won't bother with the appraisal (didn't with me or my buddy). I asked for 50k 5 years ago and they just asked me what the home was worth and that plus my mortgage was going to be about 70% and they said it wouldn't be a problem. No legal fees either. A few years later I asked for another 50k and they said "but you have never borrow a single dollar on the first 50k" and I told them I wanted it just in case and they just approved it without asking anything else. I just finished inquiring about another 100k even though I have still never used a dollar and they said I still wouldn't need an appraisal.

    I think they are still pretty easy going as long as you have a good relationship with them and you aren't trying to get the max.

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    When I got my HELOC the bank just went off of what the City assessed my house at. They also paid all the legal fees associated with the HELOC. It was quite painless.

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