Lenders Giving The Cold Shoulder

Posted at 7:24 AM, Jul. 11, 2008

It has been an unexpected surprise to many.  While in the midst of home renovations, major banks have either capped or suspended home equity lines of credit.  With today's mortgage crisis, banks are finding any and every reason NOT to loan you money. 

For many homeowners, this has come at the most un-opportune moments.  Literally after they have written checks to contractors for work currently in progress on their homes. 

Did you know that most home equity lines of credit have hidden language that states if you are late on a payment or if housing values decline, they reserve the right to cap or cut-off credit?  Many banks now are limited how much they are willing to give in the first place.  Yesterday allowed homeowners to borrow up to 100% of their home value.  Today, don't expect anymore than 65%, if that.

This should put out the warning signals to those getting ready to embark on some home improvements.  If you currently have an unused home equity line and are planning on doing some work to your home, get a working budget and then write the check out in advance to yourself and cash it before you commence work.  That way, if your bank pulls the rug out underneath you, you are not sitting on a unfinished project and no funds. 

Or, plan on saving for half the cost.  If renovating your bathroom is projected at $10K, be prepared to cough up $5K (leave a margin for unexpected costs) and write the deposit check with your home equity line.  Again, if it bounces, you haven't started making your home a construction site. 

Making home improvements can help a home increase in value, or improve it's saleability.  A recommended course of action is to ask your local real estate expert if the renovations you are thinking of, add up before you put out.