May 4, 2020 – Wells Fargo announced last Thursday that it will no longer be accepting applications for home equity lines of credit (HELOCs) after April 30. The company joins another big bank, JPMorgan Chase, in taking this route “after carefully considering current market conditions and economic uncertainty due to COVID-19,” according to its website.
What Is a HELOC?
A home equity line of credit, or HELOC, is similar to a credit card, providing the borrower with a specific amount of money they can borrow and pay back, available to draw from as needed (this is different from a home equity loan, which they would receive as a lump sum). The line of credit allows homeowners to borrow money typically against 80% of the equity (the value of the home minus the amount still owed on the mortgage) they have in their property, meaning the home becomes collateral for the loan. HELOCs can open up opportunities to fund, say, home improvement projects by tapping into your home equity instead of your savings.
What If I Have a Pending HELOC Application With Wells Fargo?
If you have a pending HELOC application with Wells Fargo prior to May 1, don’t worry – all applications submitted before that date will be processed. Customers who have applications pending are encouraged to contact their home mortgage consultant.
While borrowers with existing HELOCs will still be able to draw funds on those lines of credit, they will not be able to refinance their HELOCs.
Why Is Wells Fargo No Longer Accepting New HELOC Applications?
This move is in line with a larger trend among banks to tighten credit in response to the coronavirus pandemic, which has created increasing economic uncertainty and financial hardship. Many companies, anticipating a flood of applications in these times, are wary about the risk in opening up more and more lines of credit, including HELOCs – which signals that other banks might choose to do the same in the coming days.
This might mean that if you’ve been thinking about a HELOC to help supplement your current savings and prepare for a recession, now might be a good time to apply for one at a different institution – while you still have the option to consider it.
How Long Will This Last?
This temporary halt in accepting new HELOC applications does not affect Wells Fargo’s existing home equity customers. Otherwise, there’s really no telling how long this decision will remain in effect. Wells Fargo in particular states that it will resume accepting new HELOC applications “when the economic situation and housing market conditions improve.”
Tips For Mitigating Homeownership Costs
Coronavirus relief. If you’re burdened by the economic fallout of COVID-19 and need more information on programs such as mortgage relief, take a look our guide here.
Reassess your budget if possible. Making a budget is a great way to fit your housing costs and all other essential spending into your income, and also to ensure that you have proper emergency funds if needed. If you’re receiving a federal economic impact payment in light of the recent coronavirus crisis, it might be a good time to take another look at your budget. Use our free budget calculator to understand how best to allocate your income.
Don’t handle the burden alone. A financial advisor can help you how to best manage your housing costs while still doing what you need in order to achieve your other financial goals. Finding the right financial advisor that fits your needs doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
Photo credit: ©iStock.com/designer491
The post Wells Fargo No Longer Accepting HELOC Applications appeared first on SmartAsset Blog.