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#1623249 - 11/02/11 02:09 PM Home Equity Line of Credit to purchase home-HELP
jedeca Offline
Member
Joined: Oct 2009
Posts: 69
KY
I have a lender who is wanting to do a home equity line of credit for the purpose of purchasing a new home secured by their current residence. The customer plans to sell the current residence and pay off the loan with the proceeds from the sale.

My concern is that this may look like the lender structured the home purchase loan as a line of credit to make things easier since lines of credit are exempt from most discloures.

Any thoughts on this would be much appreciated.

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Lending Compliance
#1623252 - 11/02/11 02:11 PM Re: Home Equity Line of Credit to purchase home-HELP jedeca
Tater Offline
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Joined: Jan 2006
Posts: 646
Missouri
We've done this before without any issues. Yes, they are exempt from some disclosures but HELOCs are covered by their own set of rules and disclosures.

I don't think I would use this option for a first-time home-buyer, but from your description you are not.
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#1623288 - 11/02/11 02:40 PM Re: Home Equity Line of Credit to purchase home-HELP Tater
Dan Persfull Offline
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Dan Persfull
Joined: Aug 2002
Posts: 47,673
Bloomington, IN
Quote:
We've done this before without any issues.


You have been lucky then IMO

How can the creditor "reasonably" expect repeated transactions when they have knowledge the loan will be paid off short term? Although you structured it as an open-end credit it does not meet the definition and therefore would fall under closed-end credit disclosure requirements.

Structuring the loan in such a way would be evasion.
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#1623314 - 11/02/11 03:08 PM Re: Home Equity Line of Credit to purchase home-HELP jedeca
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,293
Originally Posted By: jedeca
I have a lender who is wanting to do a home equity line of credit for the purpose of purchasing a new home secured by their current residence. The customer plans to sell the current residence and pay off the loan with the proceeds from the sale.

My concern is that this may look like the lender structured the home purchase loan as a line of credit to make things easier since lines of credit are exempt from most discloures.

Any thoughts on this would be much appreciated.


I agree that in this case - short term financing - a HELOC is not appropriate. This seems to be a bridge loan.

In a normal purchases, HELOCs can be used for purchase as discussed in the commentary.
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