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Aug. 16, 2006 - Home Equity Lines and sales

Bob had never thought about taking a home equity line of credit (or HELOC) ... until the market increased more than 30% a year ago and the possibilities were too numerous to ignore.  Bob applied for a line of credit and quickly spent almost $50,000 as he paid off higher-interest rate credit cards and took care of some long-delayed home improvements.

Fast forward to this year and Bob wants to sell his home. For him to be able to put enough down on his new home, though, he needs at least $25,000 in profit after closing costs and commissions have been paid. But with the market plateauing shortly after he wrote the last check off the equity line, there isn't $25,000 in equity to be had.

What happened? The name of the loan - home equity line of credit - says it all. And while Bob's a figment of my imagination, this is a story repeating itself over and over again in the Valley. Sellers who took a HELOC last year are forgetting that they already pulled the equity out of their homes and are looking to receive that equity a second time. That's leading to inflated pricing and unhappy homeowners whose plans are being altered by a marketplace where market prices (or lower) dominate.

In short, before putting your home on the market take a second look at the financing involved - this includes the HELOCs. Understanding the true nature of a HELOC - an advance on the equity you've already built in your home, should help set the proper expectations when the time comes to price your home to sell.

(c) Jonathan Dalton, 2006 / Jonathan Dalton's Arizona Homes