Home Equity LOC

[twinmomma]

I'm curious about how a Home Equity Line of Credit works and trying to decide if we should bother with one.

We are going to put a deck on the house. I have the cash to pay for it, but it would deplete my savings quite a bit. We plan to sell this house and buy bigger house in a year or two. 

Would it make more sense to do something like a HELOC or a Home Equity Loan instead of wiping out my cash savings for the deck project? Or would that hurt us since we plan to sell in the near future? I'm not sure if doing a loan like that would mess with getting approved for a mortgage. I'd be able to pay off the deck project pretty quickly, I put a lot away in savings each month. Going the HELOC route would just be to keep the cushion of cash we have on hand higher.

[niq]

What does your monthly cash flow look like? Would the HELOC make your month-to-month cash flow feel tight?

How much income shock risk (job loss, missing out on a bonus you planned on, etc.) do you or H face right now?

[twinmomma]

niq, A payment on the HELOC wouldn't feel tight at all. I own the home and my boyfriend pays me rent to contribute. I essentially just dump what he pays me every month into savings, so I have plenty of wiggle room with cash flow and could make a pretty substantial payment each month on the HELOC. I'd be able to pay off the deck project in less than six months if we finance it. So I was thinking it may be better to finance it vs. wipe out the liquid cash.

[niq]

twinmomma generally speaking, if you're current (or better) on the HELOC it might help your interest rate but lower the maximum mortgage amount. But borrowing to the max to buy a home is not MM! Also an underwriter might be able to ignore HELOC liability since it will be wiped out when you sell.

I think your take is right; unless you're planning on really stretching to buy your house, I'd finance.

[CloudBee]

Is the deck for your own 12-24 month enjoyment, or an attempt to make your home value increase? Is there an existing deck that can be upgraded slightly, and painted for a refresh?

Not what you asked ^ but I would tiptoe around throwing much $ into a home I may not sell for up to 2 yrs as we don't know what the market will do.

[twinmomma]

CloudBee, It's really for our enjoyment. We have a very tiny front porch and a very old, not nice patio. We're going to expand the front porch into an actual deck where we can enjoy our outdoor living area more and rip up the gross old patio stones. It will certainly add curb appeal and be a great space for whoever buys the house next, but it's not something we're doing strictly to increase the value of the home. Our house will sell quickly and for a great price already, since starter homes like ours are basically nonexistent here.