Can You Refinance To Consolidate A HELOC Into Your First Mortgage?

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Farewell to radio

Welcome to Mortgage Mom Radio. I'm Debbie Marcoux and I am the Mortgage Mom. Every week, usually on Wednesdays at 1 p.m., I bring you a new show all about real estate and mortgage — all of the education you could need, whether you're a first-time homebuyer, an investor, trying to buy up or buy down, getting ready to retire, or looking at a reverse mortgage. We record the show, we take the sound, and we send it to radio on the weekends.

As many of you know, things have definitely slowed down. The real estate market is not moving as fast as it was. Mortgage applications are at their lowest levels in almost thirty years. That's okay — the market goes up and it goes down, and it will get very busy again. But during these slower times I'm bringing you education and I'm not charging you for it, and I'm relying on the applications we receive from listeners who choose to work with the team. So as of this coming weekend, this is the very last show where the sound actually goes to the radio stations.

What does that mean for those of you watching on YouTube, on Facebook, getting interactive with us live? It doesn't mean anything. You'll keep getting the same show. What it means for those of you whose favorite thing is listening on your station — in Los Angeles, up in Washington, in Las Vegas — is that you have to do it with us on the social channels instead. YouTube, Facebook, Twitch, Instagram, TikTok, or the podcast.

I have been on air since 2016 doing this with you, and trust me, I will be back and we will be doing the radio show again in the future. But right now, while things are slow, we've got to cut back. I know that doesn't sound fun, and I know a lot of you are feeling the same thing in your own pocketbooks. We're feeling it just as much as you are. Social media, YouTube, Facebook, Twitch, TikTok, the podcast — those are very inexpensive if not free, so that's where we're going to keep doing this for you.

One honest upside of not being on radio: I'm going to be able to say what I want. There aren't going to be filters, there isn't going to be anything I need to be concerned about saying that might offend somebody. So we can actually get very deep and very detailed on quite a few subjects for anybody who wants to ask.

Q&A: the worst thing you can do to your home's value

Karen asks: “What's the worst thing you could do to your home to lower the value, besides the obvious — trashing it?”

Obviously, if you're not taking care of it or maintaining it, as it gets more run down it's going to be worth less. Somebody will come in and look at it like a fixer-upper and you'll get quite a bit less for it. But if you're maintaining your home, I can't really think of much else — other than taste. Even if it's beautiful, if you paint it pink, there aren't a lot of people who are going to buy a pink home, and some won't be willing to do even that much work to make it look the way they want.

So make the corrections you'd like, but make ones that would also be liked by others. If you have a four-bedroom home and you decide you want a larger primary bedroom, and you take down a wall and now it's a three-bedroom, think about the resale later. Are you going to get more for a four-bedroom or a three-bedroom? Just be conscientious about what people are looking for, and try to stick to those improvements rather than only your personal taste.

Q&A: where will we be able to find you?

Everyone on the show today already knows how to find me — you're watching, you've been getting interactive, you've been asking questions. YouTube, Facebook, Twitch, the podcast, TikTok, Instagram. Go to mortgagemomradio.com; there's a contact button and I'll answer your questions that way. If you put Mortgage Mom Radio into your search bar, you will find us. But if you want to watch or listen or be part of the show, you need to be doing it live.

Q&A: where are FHA and conventional loan limits going next year?

Eric asks: “Where do you think FHA loan limits are going next year?”

Fantastic question, and if you're in the business you understand as much as I do that it is a humongous question mark — not one any of us can guess or even answer. The conventional loan limits haven't even been announced yet. Every year a lot of lenders start to get excited, they expect the limits to increase, and they start opening it up for us to take applications earlier than the announcement has been made. This year was different than last year, and different than the year before that. First they came out and said we're going to start letting you take loan applications up to $750,000 instead of the $640,000 we have right now. Then they actually rolled it back and said, wait a minute, we're starting to get a little concerned they might not let us go to $750, so we're going to let you take applications up to $700,000. I haven't personally experienced that happening before.

On FHA I've been really excited too, because we have a lot of counties that don't have the same FHA loan limits Los Angeles County does. Kern County is a much lower number than LA. Clark County in Nevada is tons lower than Los Angeles County. I'm hoping they start to level that off a little. Here in California, the FHA limit has typically followed the conventional guidelines, so in Los Angeles County we can go as high on FHA as we can on conventional. But for my other areas — Clark County, up in Seattle, Sonoma County, places with smaller limits — I'm hoping we see a $50,000 to $75,000 raise, hopefully maybe a hundred thousand. Again, my guess is as good as yours. I wish I could answer it for you. I'll be waiting for the answer, same as you.

Q&A: can I refinance later to get rid of a home equity line?

A listener asks: “If I take a home equity line of credit right now, can I refinance when interest rates go down to get rid of the HELOC?”

That is a great question, and I'm going to be straightforward with you. If you've got a home equity line of credit, I want your ears to perk up right now and your head to tilt to the side like your Labrador does at home when you say ball, snack, or park.

A home equity line you get today is fine. You've got the equity today, you've got a low rate on the first mortgage you took out a year or two or three years ago, that's all in place today. Everything is based on today — including your home's value today. A lot of you are taking lines up to 90%, maybe 95% of your property's value.

So: your home is worth $100,000 and you have a $50,000 mortgage on it. That's 50% loan to value. You take a line of credit for $45,000 and you now owe $95,000 on a home worth $100,000. Pretend property values do not drop at all — no downturn whatsoever. Two years from now rates come back down and you'd like to roll the two loans together into one. Will you be able to refinance? The answer is no. Perk up the ears, tip your head. No. If you owe 95% of what your home is worth, you will not be able to do a refinance to consolidate the two loans into one. Not a conventional refinance. Not a Fannie Mae. Not a Freddie Mac.

Could you refinance and roll the two together if rates come back down? Sure — you could do that with an FHA loan. FHA will allow you to consolidate a home equity line with a first mortgage, and they'll call it a rate-and-term refinance, because you've had the line of credit open for a minimum of twelve months and you haven't drawn against it in a minimum of twelve months. Keep that in mind too: if you have a line of credit and you draw money on it within the last twelve months — if you utilize it — you are not going to be considered a rate-and-term refinance. So in the scenario I gave you, $100,000 value, $50,000 owed, $45,000 line, 95% loan to value, no draws in at least twelve months — yes, you could do an FHA refinance at that point for a lower rate and to consolidate.

Now, what happens if values drop? Today your home is worth $100,000. In a year or two, what if it's worth $75,000 and you owe $95,000? You will not be able to refinance. You will still have that line of credit, you will still owe that loan, you will still have those terms outstanding. And remember that a lot of these lines are adjustable and tied to the Federal Reserve prime rate. Many of them today are at 9% and above. Depending on credit scores and how much cash you're trying to pull out, I've seen them at 13% and 14%.

So before you make a decision to take a line of credit, before you apply, you need to think about how much you owe, how much you need, and what you do in the future. If you owe $50,000 on your $100,000 property and you only take $25,000 — so you'll owe $75,000 — even if values drop, you're probably going to be in pretty good shape. How much are you utilizing, how much is your home worth, how far could values fall, and will you still be in a position to refinance later? Those are very important questions to ask yourself.

And if you're one of those people with your heels stuck in the mud who does not want to refinance because you do not want to lose your 3% interest rate, but you owe $300,000 on the first and you've got a $150,000 line of credit — you should be picking up the phone and calling us about what you're paying and what that looks like in the future. Everywhere you turn right now, every marketing piece, every ad, every video, it's all get a line of credit, get a line of credit, don't touch your first mortgage. Let's talk about whether that's really the right move.

Q&A: if my home's value drops, does my escrow change?

A listener asks: “If I buy a house now and home values drop so my home is worth less, does it affect my payment or my escrow in any way?”

Great question — and something that hasn't come up in years and years. If your property value drops, you can actually request from the assessor's office to have the property reassessed. They will bring the value down, they will change the assessment for property taxes, and they will lower what you owe. A lot of people don't know they can do that. In 2008 and 2009, when values dropped significantly, many people didn't know it was even an option.

Let me tell you, I don't know of a lot of county assessor's offices that are sending out letters saying congratulations, your property value dropped, so we lowered your taxes. They're not going to do that. You have to ask for it and request it. But if they do drop the value and the taxes due, you can get to your lender, call the toll-free number on your statement, let them know you've been reassessed, and send them the information you received from the assessor's office. The mortgage company will then change your monthly payment and reduce that escrow account so they are only collecting what they need to cover your tax bills.

Q&A: buy at the start of the year, or keep renting?

Piper asks: “I want to buy a home at the beginning of the year. I'm nervous with rates increasing. I keep hearing it's not a good time to buy, and I also hear it's a great time because rents will keep going up and sellers will help with closing costs. If I want to buy and stay at least five years, is it smart to buy or keep renting?”

That's a question I get just about every day sitting at my desk. Number one: every single person who buys a home today needs to consider that real estate is a long-term investment, not a short-term one. What goes up must come down, and what goes down will go back up. It bounces like a ball, it moves in a cycle. When we finish the top of a cycle and come back down, we start going back up again — and there's never been a time in history when things did not eventually supersede where they left off the time before.

You want to make sure that whatever you're buying, you and your family will be comfortable in it for at least five years. Give the cycle time to bottom out and turn back up. It won't take a full cycle, it won't take seven to ten years to get back to where it left off, but five years would be my guess. So if you're expecting to stay somewhere five years, and your rents are increasing, it's not a bad time to buy.

Here's another person who really needs to look at this: somebody who owed money when they did their taxes. Did you have to write a check? If you had to write a check, and your rent is going to be increased on you, then call your CPA or whoever prepares your taxes and ask them how your return would have been different if you had owned a home. If you want to know what numbers to give them, that's why you call our office — we'll give you those numbers. I had a gentleman who works for the sheriff's department call me; this year he ended up writing a check for about three thousand dollars, and had he owned a home and had the mortgage interest and property tax deductions, he would have gotten a refund instead of writing a check.

Take a lot of that into consideration. But it's also very important that you're budgeting, that you're getting into a home you can afford, and that you know you can afford it for the long haul.

Selling to buy? Why waiting mostly cancels itself out

These are my favorite ones. A lot of people call me and say: I want to sell my house and buy another house, but I don't want to buy right now because property values are high, so I'm going to wait and do it next year, or the year after.

But you own a home, and you need to sell that home to buy your next home. In that situation, if you wait a year or two for values to come down, what happens to the value of the home you own today? You're now not going to get as much out of your home as you would have if you'd sold today. You buy the next home at a lower price, but you got less out of your house. And vice versa: you buy today, you sell for more, you get a bigger down payment, but you buy at a higher price.

So for somebody selling one home to buy another, I don't really think it matters when you do it. You're moving one investment over to another. You're taking equity and putting it into the next, and even if you buy high and property values drop, you rolled all your equity over — you're still never going to end up upside down. It's really a matter of need. Do you need to move? Have you outgrown where you are? Are you busting at the seams? Three kids in a two-bedroom condo — we need to talk about that. If you're comfortable where you are and you don't need to move, maybe the opportunity is an addition instead of selling and buying. It depends on your scenario, and there's no way for you to know unless you call and talk it through.

Q&A: buying with a partner who isn't employed

Heidi asks: “I'm not married and I want to buy a house with my partner. Is it a problem if they are not employed?”

The answer is no, it's not a problem. If your partner has a ton of debt and no income, we might recommend they don't go on the application with you, so that you qualify for more. But if almost all of your debt is joint — joint credit cards, joint car loans — and you're qualifying on your income anyway, then putting your partner on the loan truly wouldn't matter. So know that it isn't really an issue.

Q&A: adding someone to a refinance, and the property tax trap

A listener asks: “Can I refinance my house and add someone who currently isn't on the loan or on title?”

Yes, you absolutely can. You can add additional parties to a refinance, you can add people to title to do the financing. We do it all the time — some people come on, some people come off. What we do need to talk about are the tax ramifications if you are an original owner of the home.

Every state is different. In Nevada you have terrific property taxes; the taxes stay with the property. But in many areas the property gets reassessed with a change of ownership. So if I'm the original person who owned the home and I add somebody to my title and I stay on title, my property taxes aren't going to change. But if I come off title — let's say I add my son and I come off — the ownership changed. That original owner who was an owner at the consummation of the purchase is now gone. That's a change in ownership, and that home will be reassessed, and you'll see property taxes change. So it is very important that we talk about who's on it now, who wants to come on, who's coming off, and that we keep somebody on title to maintain the current property tax bill you have in place.

Q&A: the cap on the mortgage interest deduction

Michelle asks: “Can you explain more about the cap on the mortgage interest we can deduct on our tax return?”

I'm going to be honest with you: that's not one I can fully speak to. I'm not a CPA, I don't have a license to do tax returns, and I don't legally have the ability to advise you on that. What I do know is that they capped it, and it goes up to a $750,000 loan amount. So if you have a mortgage above $750,000, you're only going to be able to write off the interest on what the $750,000 portion would have cost you — and your CPA does that calculation with you.

Here's the part worth understanding: let's say you have a $750,000 loan at a 7% interest rate. The interest deduction you get to take is going to be far superior to somebody with a $750,000 loan at 3%. It is about the loan size; it is not a cap on the actual amount of interest you write off. That's about as much as I can say on the subject, because I'm not licensed to talk to you about it. You'd really need to call your tax advisor to get a clear understanding of exactly how it works.

Q&A: pricing an offer when there are no comparable sales

Michelle also asks: “How do you know whether the price you offer isn't too high, if there's no comparable property similar to it in the market?”

What she's asking is: if you're a buyer writing an offer on a property that's more unique — not a tract home, not a cookie cutter where your neighbor has the same floor plan and just sold for a certain price — a custom home, or a neighborhood where nothing has sold recently, how do you know if you're offering too much or too little?

I'm going to be honest with you: that's really where having a very good real estate agent comes in. It's very important you're working with a knowledgeable agent who has been in the business a long time. I hate to say this and I don't want to put anybody down, but if your cousin just got a real estate license and has never done it before, that's not the person you should be working with. Sorry, cousin.

Right now the industry is slowing down. There's not a lot for sale, but there also aren't a lot of buyers — it's a bit of a standstill as of today, the end of October. Sellers don't want to bring prices down, buyers don't want to buy. So you want somebody who has been through multiple types of markets, markets going up and markets coming down, who has a way to run comparables and help you get to the number you should be offering. If you're working with somebody who does one or two deals a year at the very most, that's probably not the person for this market. I'd say look for someone who got into the business no later than 2007.

There are going to be a ton of real estate agents listening who want to damn me for that, and I get it. But we're going through rough times and you want to be working with the very best. This is when those people come out and shine like trophies, and a lot of others retreat, don't pay their dues, don't re-up, and get out of the business. So work with somebody really good who can help you get to that number and show you how they got there. Then it's up to you: hear what they have to say, look at the data, decide if it makes sense, and ultimately make the offer you feel that property is worth.

Wrap-up

That's the end of the show. I won't be here next week on radio, and we are going to miss you — you have no idea. If you're listening on Saturday or Sunday on your favorite station, we won't be there next week; the only way to hear the Mortgage Mom is on one of our social channels. We're live every Wednesday at 1 p.m. If you want the reminder, text the word MOM to 844-935-3634 — that's 844-WE-LEND-4 — and you'll get one text a week, that's it, with a link to join us live or to watch later. It is really important for you to stay up to date and in tune with what's happening in this market. I just need to contract like the rest of the world does. I hope to see you next week, right here.