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Home Equity Line of Credit


the_girl
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I have banked with my current back for about 20 years. I have a good relationship with them. My banker is offering me a home equity line of credit. We currently have a $230K mortgage with a perfect payment history and substantial equity in our home.

The deal is that we would open the line of credit and it would be available to us through a "Visa" card and checks. We don't have an immediate need for these funds, but I am thinking it would be nice to have available in the event of an emergency (a/c outage, act of nature not covered by ins, etc). We are very good about our credit and money now and have been for several years - so the temptation to use it for other purposes is not strong.

My question is how does this show up on our credit report? Does it only show up in the amount that we use? Let's say that it's a $50K line of credit and we use $5K of it...what does that look like on the tradeline? Does it look like we have $50K of available credit? Does that show up as the limit?

Thanks!

the_girl

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Depending on the area you live and the housing market you have, this can be a good way to turn a profit using othre people's money. (This is called leverage). What you do is use this money as a down payment on a second home.

If you are in an area where the housing market is climbing, like it is here in central Florida, you can get a great return on your money.

For example, right now the housing market here in the Orlando area is booming. Sale prices are climbing by $3000 to $5000 a month. So you use $50,000 in equity to buy a $225,000 home (average for this area for smaller new homes). You rent the home out for 2 years, allowing the renters to make your house payment. Even at the low end of an appreciation of $2,000 per month, the home is now worth $273,000. You sell and take your profit. You just turned $50,000 in cash into $93,000 in just 2 years. This means you just got about a 32% annualized rate of return.

That is how people become rich in real estate. The catch is, have another housing or economy crash, and you lose it all.

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