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Q & A: Can I Sell a House With an Equity Line?

Q & A: Can I Sell a House With an Equity Line?


I recently refinanced and took out a home equity loan at the same time. My husband and I really outgrew our current home. Can we sell the house while we have an equity line? Do we need to pay that off first? 

You can absolutely sell the house with an equity line.  An equity line is considered a second mortgage, so it works the same as a first to the extent that you can sell and pay it off at closing.  The only thing that you do need to be aware of, though, when it comes to these, is how you handle it to avoid a closing delay.  Since the line is revolving (you can take money out and repay as you'd like), you need to FREEZE the line in advance of closing so you can get an accurate payoff.  I've seen a closings get delayed for hours, or even days, by someone not doing this in advance.

I am thinking of buying a home. I currently rent an apartment. Where are interest rates now and do you think they will rise in the coming months? If I am buying alone and I am a first time buyer is there a specific loan type I should be looking at?

With regard to loan type, there's no specific loan, it is just what works best for you.  There are a lot of first time homebuyer loans that vary state-to-state, but they might not be the right fit, so check into them and see.  The other side is, how long, realistically, do you plan on staying in the property?  A 30 year fixed  can be a great product , because you know exactly what you have to pay every month and that will not change.  If you pay extra, you'll just pay it off sooner.  However, if this is a starter situation, and you are firm in your belief that you'll be there just 3, 4, or 5 years, taking an adjustable rate loan might make sense.  A 7 or 10 year ARM (adjustable rate mortgage) works exactly the same as a 30 year fixed for 7 or 10 years, but at a lower interest rate.  It can be a great product.  Do some homework on the first time homebuyer programs in your area, but if you really prepare yourself and have a solid down payment, a regular program may work just fine for your needs.

A friend of mine recently mentioned private mortgage insurance. What exactly is that? Who does it protect and why would someone get it?

Private mortgage insurance does not get acquired by a buyer.  Private Mortgage Insurance is something the bank assigns to any loan  when a down payment is under 20% of the purchase price.  It insures the bank against you defaulting on the loan, as banks decided that their maximum tolerance for risk is a 20% down payment -  they simply require it as extra assurance.  This is a cost that the borrower pays. 

I recently found a home I love. I am pre-approved for a mortgage, however, the sellers now need more time since the home they are supposed to move in to needs more time to be completed. My rate lock will likely expire. What can I do?

This is a difficult spot.  It's very hard to lock an interest rate before you are in contract on a property because things like this can occur.  There are a couple of possibilities.  You need to  find out the timeframe so you have a better idea of what to do.  First, check with the bank to see what their extension policy is, or what their policy is to break the lock and re-lock (some banks allow this).  Second, if the sellers' timeframe pushes beyond your contract, discuss the fact that they should be paying for the extension because you are performing all that you need to in order to close within the terms of the contract.  If this is a house you love, it might cost you a little extra but maybe you can get the sellers to jump in since they are causing the delay.

Dottie Herman is CEO of Douglas Elliman. If you have a real estate question for Dottie, please send it to: Reporters@WPCnews.com


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