Home equity line of credit

[Ima saver]

I need to buy some land, but I am afraid to use up the cash I might need to finish my spec. house.
Can anyone tell me how a home equity line of credit would work and what the approx. interest rate would be?

[34saving]

With good credit you could probably get a HELOC at prime -1% or maybe even prime -1.5%. Prime is 8.25% right now and might very well go up another .25% before the year is over. If this is VERY short term you might be able to get a intro 6 month rate that really pretty cheap, but make sure there aren't any pre-payment penalties. How it works: HELOC will be leveraged against your current property. Usually they just give you a checkbook and you spend the money however you want. You should be able to EASILY qualify for 80% loan-to-value, but if you need more you can probably get it. There shouldn't be any closing costs. Usually there's something like a 10 year draw period and a 15 year repayment period, but that varies. If you need this money for more than a very short period of time you might want to consider taking a no closing cost ARM for the land (or refi. your current property with a short term ARM.) I say ARM because you can often get them with no closing costs. (I think ING has no closing costs ARMs right now . . .)

[Ima saver]

I forgot to mention that I have owned my home free and clear for years. My fico score is 817. I will pay this heloc off when I sell the spec, which I hope will be the end of this year. My house is worth at least a half million and I would only borrow $80,000 or less for the lot. (that seems like a lot for 1 acre) So you are saying I should be able to get this loan in the 7% range?
I figured closing costs on a heloc would be a lot less than a regular mortgage on the property.
Thank you for your help.
I am a little scared against borrowing against my house, but I don't know how much cash I will need to finish up this big spec house.
Any other suggestions would be helpful!

Don't you have quite a bit in the bank. I have a credit union that will lend me money on a secured loan - up to what I have in their account for like 5%. (might be a little higher now, but I did a small loan at 5% in the late 90's.)

I would also say that the bank I had money in wanted to give me the same deal at 18% - so I would call around your credit unions specifically.

LOL, I will also add that there were no processing fees other than $10.

[Diolla]

Ima, If you know how much you are going to need it might be better to get a HELO (Home Equity Loan) rather than a HELOC (Home Equity Line of Credit). The HELO is a set amount loan vs a line of credit and you can usually lock in the interest rate instead of the variable one most HELOC's come with.

Just a thought, make sure you banker knows what you want.

[Ima saver]

Thanks Diolla, yes, I do know how much I need. I did start out with over $300,000 in the bank (cash) but I have over $200,000 in this house now and do not know how much it will cost to finish it. (haven't finished the outside yet), so I don't think I should borrow against the money I have, in case we have to use it. We have decided never to build a spec house this big again! (3500 sq. ft, but with a nice sunset/mountain view)

[boefixepa]

Ima,

You have tons of options with what you have going on right now. Go to the bank tell them what you want to do and tell them to give you some options. Here's what I see as possibilities.

A short term construction loan on the spec house you are finishing, these are short term and paid off when you sell the house. They are generally really good rates and then you can use your money for your new lot.

A standard security loan using either your house, the land, or the spec house as colaterel.

A standard line of credit at the bank for your construction business. I know ours had one for over 100K and the interest was lower then we were earning so my old boss used it rather than taking money out of the rat hole he had it stashed it.

A standard mortgage on the property using a down payment, with your history you should be able to get a wonderful rate.

Personally I'm thinking you should be able to find something great and don't take no for an answer! Personally I'd think the business line of credit or the construction loan on the spec house would be the best deals and the least overall money, but put your banker to work for you, like they suppose to, and tell them to earn your business!

[JoyJoy]

Diolla is correct. A home equity loan in your case would be better. Personally if i had the investments and funds that you have, I wouldn't borrow. The spec house in itself is collateral. Then what do I know?

Good luck on your venture whatever you choose to do.

[Ima saver]

Perhaps I should just get a construction loan to finish the house and pay cash for the lot. I will talk to a loan officer and see what is cheaper. Once I sell the house, I will pay it off. Thanks for the advice!