OT - Home Equity Lines

[Phantom Husker]

I was thinking about setting up a home equity line on my house in case of emergencies. I owe very little on my house and just recently completed a a home remodel that used about $60k from my savings. I know rates are garbage and I don't plan on using the HELOC, but has anyone had a good experience recently working with an Omaha bank setting up a HELOC? I think I'll sleep better at night after watching the news all day having a HELOC in place. TIA

 

[Jaemekon]

I was getting calls about setting it up for a few months, but of course I don't appreciate getting spam calls, so I wasted the advisors time, and made it so they can't transfer me if they wanted, and now they have since quit contacting me. I feel like one of the guys said he was from Omaha, but I told him that I don't trust him, and that was the end of it.

Not real helpful, but more just encouragement that you are doing the right thing. I don't really have a use for it.

 

[RedBaloneyPony]

I used a HELOC to put an addition onto my home, not for what you are looking for but obviously by doing so, the bank will have a lien against your home until it is closed on, if you do end up using it. Mine was short term, 5 years until the HELOC expired, I closed mine after 18 months and refinanced my home. I am not sure if my rate was locked in for the 5 years or if it was variable.

 

[HuskerO]

I was thinking about setting up a home equity line on my house in case of emergencies. I owe very little on my house and just recently completed a a home remodel that used about $60k from my savings. I know rates are garbage and I don't plan on using the HELOC, but has anyone had a good experience recently working with an Omaha bank setting up a HELOC? I think I'll sleep better at night after watching the news all day having a HELOC in place. TIA

How much do you currently have in savings for emergency use? How much are you wanting to have available for emergencies?

 

[Phantom Husker]

How much do you currently have in savings for emergency use? How much are you wanting to have available for emergencies?

Currently have 45K in savings and looking for about a $50K emergency line in addition to savings. Monthly expenses are roughly $3500 including mortgage payment. Might be overkill, but I get a little sad looking at my online banking and not seeing the rest of the cash there I used for the home remodel.

 

[HuskerO]

Currently have 45K in savings and looking for about a $50K emergency line in addition to savings. Monthly expenses are roughly $3500 including mortgage payment. Might be overkill, but I get a little sad looking at my online banking and not seeing the rest of the cash there I used for the home remodel.

Yeah, $50k is really high by itself especially with the additional $45k. That's nearly $100k in cash.

I get it though, you build up that cash amount so you get comfortable with it knowing it's right there in front of you, easily available. Then in one investment (home remodel) over half of it is gone so now there's an uneasy feeling not seeing that amount readily available to you.

General rule of thumb is to have 3-6 months of expenses in an emergency fund. I prefer 6-8 months so you'd only have to get to $21k-$31k to hit that mark. I believe you, personally, want to separate your savings from your emergency fund (makes sense) so rather than borrow through a HELOC (doesn't sound like you need it now, so what's the point?), for now I would use my savings as my emergency fund and start saving like crazy again to build that emergency fund back up to $30k or so.

$50k for just emergency use, while it would feel good, you could end up costing yourself purchasing power.

It also depends if you're going to retire in 5+ years or any time soon. Max out that Roth IRA, 401k, etc. Definitely talk to a financial advisor on what to do with your extra cash, but a HELOC is making little sense since you don't sound like you need a large sum of cash right now.

Why pay someone money (closing costs, interest) to get more cash that you don't need or plan to use?

 

[Phantom Husker]

Yeah, $50k is really high by itself especially with the additional $45k. That's nearly $100k in cash.

I get it though, you build up that cash amount so you get comfortable with it knowing it's right there in front of you, easily available. Then in one investment (home remodel) over half of it is gone so now there's an uneasy feeling not seeing that amount readily available to you.

General rule of thumb is to have 3-6 months of expenses in an emergency fund. I prefer 6-8 months so you'd only have to get to $21k-$31k to hit that mark. I believe you, personally, want to separate your savings from your emergency fund (makes sense) so rather than borrow through a HELOC (doesn't sound like you need it now, so what's the point?), for now I would use my savings as my emergency fund and start saving like crazy again to build that emergency fund back up to $30k or so.

$50k for just emergency use, while it would feel good, you could end up costing yourself purchasing power.

It also depends if you're going to retire in 5+ years or any time soon. Max out that Roth IRA, 401k, etc. Definitely talk to a financial advisor on what to do with your extra cash, but a HELOC is making little sense since you don't sound like you need a large sum of cash right now.

Why pay someone money (closing costs, interest) to get more cash that you don't need or plan to use?

Thanks for the info. I probably should have added some additional info. I max out my Roth 401K every year, but don't qualify for a Roth IRA. I do a $30K conversion every year from my traditional to Roth IRA that I set-up when I changed employers a few years ago. Definitely nowhere near retirement as I'm only 36, but another possible use for the HELOC would be to scoop up a rental property if the price, location, rental rate, etc. was right. Not sure that I would do that, but would use the line to put 30%-35% down, fix the property up and get it rent-ready, then have my bank put the permanent financing in place, pay my HELOC to zero, etc.

 

[HuskerO]

Thanks for the info. I probably should have added some additional info. I max out my Roth 401K every year, but don't qualify for a Roth IRA. I do a $30K conversion every year from my traditional to Roth IRA that I set-up when I changed employers a few years ago. Definitely nowhere near retirement as I'm only 36, but another possible use for the HELOC would be to scoop up a rental property if the price, location, rental rate, etc. was right. Not sure that I would do that, but would use the line to put 30%-35% down, fix the property up and get it rent-ready, then have my bank put the permanent financing in place, pay my HELOC to zero, etc.

I'm assuming you make too much money to qualify for a Roth IRA? If that's the case, could you do a Traditional IRA instead?

I don't think your conversion from Traditional to Roth affects that, but I'm not certain...

If you're not putting any new money into any kind of Roth, you'll build your emergency fund back up in no time.

Lastly, I'm not sure what the rules are with HELOC (what you can/can't use the money for), but unless you're going to try & use it right away, I'd personally hold off.

I probably didn't answer your question, but good luck!

 

[schuele]

Lastly, I'm not sure what the rules are with HELOC (what you can/can't use the money for), but unless you're going to try & use it right away, I'd personally hold off.

I don't think there are any restrictions on what the proceeds of a HELOC can be used for. But the rules have been tightened significantly on what a HELOC can be used for if you want the interest to be tax-deductible.

 

[king_kong_]

I get a little sad looking at my online banking and not seeing the rest of the cash there I used

Relatable

 

[cornhustler]

Might be overkill, but I get a little sad looking at my online banking and not seeing the rest of the cash there I used for the home remodel.

I feel you, felt the same when I paid the down payment on my house, but you are losing money in opportunity cost. You didn't lose* the money on the remodel, you just changed asset classes. I would keep 28k on hand and invest the rest. Every year you keep 50-100k in the bank is a year of lost gains. Use your excellent financial discipline to flex and buy some more appreciating assets.

*well all of the money