Is This a Good Time For a New HELOC?

"Recently you pointed out a slew of problems now faced by borrowers who took out HELOCs before the financial crisis. Their timing was terrible, but that's water over the dam. Are conditions more favorable to borrowers taking out HELOCs now?"

In some respects, conditions are more favorable now for HELOC borrowers who meet the standards, which are tougher than they were before the crisis. Lenders now generally want borrowers to have equity of 20% after drawing the maximum amount under the line. That means that if a house is worth $200,000 and the first mortgage balance is $140,000, the HELOC line cannot exceed $20,000, which would result in total mortgage debt equal to 80% of value. Before the crisis, many HELOCs were written with no or negative equity, reflecting a widespread belief that house prices always rise. The higher equity requirements today are designed to protect the lender, but they also prevent borrowers from getting in over their heads.

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