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My wife and I bought a house in the last 2 years. Unfortunately, the layout of our daughters’ bathroom and the master bathroom is atrocious.
So, we are considering a renovation that will INCREASE our home’s value, especially when you consider how renovations may also help SAVE on taxes at the time of home sale.
As someone who has an entire section of his blog covering Dave Ramsey, I like to consider what he thinks about HELOCS making a decision. Let’s consider the opinion of finance guru, Dave Ramsey, before deciding to pursue a HELOC. You may know that I don’t always agree with Dave Ramsey, but I like to understand his perspective nonetheless.
What do you think about HELOC? I mean, seems like a good deal to use to pay off your mortgage. Especially if you just want to pay off your debts and be over with them. Also financially might be beneficial for you to use. Is it worth using HELOC and being in debt again or is there something else?
Let’s get started.
What is a Home Equity Line of Credit (HELOC)
So, what is a home equity line of credit (HELOC)? HELOC is like a home equity loan, much like a credit card that you borrow from a lender that matches up with the current worth of your house. It is known to be a “revolving credit” that allows you to retrieve a flow of money. Since it is like a credit card, you have to pay it back later on. Though it may seem great it can be a process to get through to be approved by the lender to have HELOC.
When you start applying for HELOC it can take up to a few weeks for your application to be approved. The reason why is because it is basically as if you are getting a second mortgage. Once the lender has received your application they have to go through a list to see if you qualify for HELOC and home equity. The lender usually looks into your house’s current equity, appraised value, proof of income, credit score/history, and debts. Once evaluating your application they determine how much of the credit line they will give to you. On average, the lender will usually give 80% of their home equity to you. Something to note is once you have HELOC, you have to start paying it back later, which means having a payment plan. When repaying, many people plan to pay it back with 30 years! It is a huge commitment and something to think about as well when considering possibly getting HELOC.
Does Dave Ramsey Approve of HELOCs?
From what it seems like already, let’s discuss what Dave Ramsey thinks about HELOC. Dave Ramsey does not necessarily agree with the ideas of HELOCs. If not done right or a miscalculation, your house can end up being taken away by the bank. That is why he believes you are probably better off without it and waiting to save up for an upgrade on your house. If it means that much to you to do some renovating, there are other methods that Dave Ramsey considers doing instead.
That all said, there are pros and cons of getting a HELOC. Dave Ramsey can be prescriptive, so let’s consider some of those to make you most informed.
Does Dave Ramsey approved of HELOCs to pursue Velocity banking?
I am not sure as I could not find anything that showed that Dave Ramsey has said much about velocity banking.
What company would I use for a HELOC?
Qualified borrowers can borrow up to $300,000 Approval times can take as little as 5 minutes, and funding can take as little as 5 days.
As there’s so much to be excited about with Figure, let’s chat about some of the qualifications. At the time of this writing, you have to have a minimum credit score of 620 (720 for Oklahoma), a minimum credit file of 2 years, no delinquencies on current mortgage for 6 months, no foreclosures in the last 5 years, no collections, and no bankruptcies in 7 years.
Should you use a HELOC to pay off a mortgage?
HELOC may seem like a good idea to use to pay off your mortgage. That sounds like a pretty great idea. That said, let’s consider some things. There are lenders out there who say it’s ok to use HELOC to pay off your mortgage and it will be faster! This is what is known as a money merge account. Whatever you do, do not listen to those lenders. All you will end up doing is being more in debt again and for years. Those lenders don’t care about you. There are other ways you can pay off your mortgage without ever touching HELOC.
For instance, using Dave Ramsey’s mortgage accelerator would be something you should look into instead. What the mortgage accelerator is supposed to do is to help speed up the process of paying off your mortgage. You can find out by using Dave Ramsey’s mortgage payoff calculator to see your results on how fast you can pay off your house. That way you can get a better understanding of how a mortgage accelerator calculator works and if it is reliable.
Dave Ramsey’s Perspective
Going into a video about HELOC called “Sam Kwak vs. Dave Ramsey: HELOC Rant”, both share their opinions on HELOC and what they think about having it. From Dave Ramsey’s point of view, you get to understand why he is so passionate about staying away from HELOC to pay off your mortgage. He states the problems that will start to rise because of people having HELOC. Dave Ramsey shares how “stupid” it is to borrow the money. He shares that you should not use HELOC for unnecessary items or throwing parties for fun. It is also noted that there could be a good chance you could lose your house. There is also a potential interest rate that may be added HELOC. Overall, Dave Ramsey just thinks it is a waste of money to use and something you should never get.
Sam Kwaks Perspective
In Sam Kwak’s point of view, he doesn’t appreciate how Dave Ramsey “assumes the worst in people” with their financial situation. He shares that there are well-intelligent people who are deciding what would be best for them and doing their part of the research. His way of HELOC is to use the credit to pay down the debt and reduce your liabilities. He does agree with Dave Ramsey about how it would be stupid to use HELOC to buy unnecessary items. Although he does like how HELOC can be used for incoming producing assets like properties. He believes that is an appropriate way to use HELOC to build more income. Though, when Dave Ramsey mentions the bank taking your house away, he claims that it is false. Sam Kwak talks about how different banks have different home equity lines of credit. So it is not fully true about how they can take away your house. It depends on what type of plan and how long it will take for you to pay off your HELOC. Overall, only use HELOC if it is necessary and you know where you are at financially to be responsible.
Conclusion
With HELOC, it is best if you don’t mess around with it. With so many different pros and cons, the cons exceed over and would be best to make a saving fund instead. It is also nice though if you do have HELOC, you can figure out a faster way to pay it off using the mortgage accelerator. This is a huge deal and something that shouldn’t be taken lightly since it is money.
Finally, it may be a great idea to instead try out Dave Ramsey’s 7 baby steps to improve financially and become wealthy. That way you can learn how to save up and create a plan in the future once you get through the baby steps.