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How to Use a HELOC Before and During a Job Loss

[Mar 9, 2009.]

 

The rising unemployment rate around the nation has caused some homeowners to turn towards their home as a safety cushion. If you or your spouse thinks a job loss is in the near future, here are a few things about a home equity line of credit every homeowner should first consider.

Applying for a Home Equity Loan While You Still Qualify
In addition to your credit history and home's appraisal, mortgage lenders pay special attention to your household income and employment status. As a result, a job loss will seriously hurt your chances of tapping into your home's equity. With this in mind, if you have enough equity in your home, you should apply for a HELOC as early as possible while you still qualify. By doing so, you'll still have access to your home's equity through a HELOC if and when a job loss occurs--and it may just be enough to hold you over temporarily.

Borrow Only What You Need From Your Mortgage
This is typically basic advice to anyone shopping for a mortgage or refinance--but for someone expecting a job loss, this is a very serious warning. The worst thing that can happen to an unemployed homeowner is to incur serious mortgage debt. If you apply for a HELOC and qualify early on, don't be tempted by the attractive credit line offerings and various advertisements. Only borrow what you need, and only draw from your credit line when absolutely necessary.

This Short Term Solution Calls for Long Term Planning
What's your game plan? What's going to happen to this HELOC in six months, one year, and five years from now? These are all questions that need to be in every homeowners mind. While a HELOC allows somewhat easy access to one's home equity, it can also become a serious trap if approached naively. In addition to unemployment rates, the common ingredient for many foreclosures has been negative equity and sliding home values.

If taking out a HELOC is your best solution, consider how your unemployment will eventually factor in. While it's tough to predict how long your unemployment will last, it's important to remember that the debt on your HELOC will burden you until it's paid off. Homeowners should approach this HELOC route with caution as it is more a short term solution for temporary needs. The reality is that using a HELOC in such a way can help cover various expenses and pay other bills, but it can eventually put your home in serious risk. Before proceeding, it is also strongly recommended that you consult with a local mortgage broker or mortgage company for more detailed information.

 

About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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