Even People Without Credit Problems Having a Hard Time Getting HELOCs

By Gina Pogol
Mortgage Credit Problems Columnist

Ben Asks: Dear Gina, I used to have bad credit but now I don't. I have a home worth about $300,000 and I only owe $223,000. But I am having a very hard time getting a home equity line of credit (HELOC). What gives?

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Gina Says:

Dear Ben,

Your signature says it all. Lenders are leery of funding home equity line of credit (HELOC) loans in California, and Fresno is one of the harder-hit areas. Home loans even for people without bad credit are hard to come by in certain parts of the country. If you lived in Wisconsin, Vermont, or Texas, where home values have remained relatively stable, you'd have a much better shot. However, you may have a few options.

Try a smaller bank.

Maybe the big guys are pulling back, but smaller banks make their own rules. You may want to establish an account with one of them, then see if you can get a line of credit through such a lender.

Widen your search.

Try filling out the form on this site. It takes less time than a phone call to a single lender, and you can get quotes from several lenders by making a single inquiry.

Improve your credit.

Just because you no longer have a bad credit problem doesn't mean that you can't improve your score and up your chances of getting approved. A few more months of solid history, a little more time devoted to reducing balances, a little more distance between you and your past credit problems--improving a 699 credit score to a 700 score--can open a lot of doors.

Check out FHA.

No, FHA doesn't offer a HELOC. But you can refinance up to 85% of your home's value while cashing out some equity. While you have to take the entire amount at closing instead of having the flexibility of a HELOC, it is a viable solution, your interest rate can be fixed, and credit score requirements are manageable. Unlike conventional lenders, FHA imposes the same guidelines wherever you are in the country. So being in California won't hurt you. And with a home valued at $300,000, you'd be able to get a loan for $255,000, about $30,000 more than your mortgage payoff. Conventional mortgage lenders only go to 80% at best, meaning you'd only be able to get $17,000 cash.

Wait a bit.

If your need for cash isn't especially pressing, you could wait until mortgage lenders venture back into California. They will, eventually. Home equity lending is too big a business to stay out of permanently.



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