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> For years now homeowners have used HELOCs (Home Equity Line of Credit), to effectively 100% finance an additional home purchase by using the HELOC for the dow

> For years now homeowners have used HELOCs (Home Equity Line of Credit), to effectively 100% finance an additional home purchase by using the HELOC for the downpayment, and a mortgage for the rest. Banks hate this, but it's legal. If banks actually hated it, they would simply not write the loan. Why do you think they hate it?

sbarre 5y ago
Because it increases the risk of default. I say "banks hate this" as unsubtle shorthand here. Obviously they don't hate it enough to refuse people additional mortgages (it's all secured by tangible assets at the end of the day) but they certainly aren't as happy about it as if people had a 20% downpayment in cash rather than pulling it from a line of credit.
- quickthrowman 5y ago
  > Because it increases the risk of default. For who? Banks don’t hold mortgages on their books, they sell them to investors. I don’t think you understand how modern finance works.
  - nameisname 5y ago
    Agreed. OP doesn't understand the situation.
  - sbarre 5y ago
    Yeah I guess I am not trying to provide a super in-depth explanation of how finance works here, since that's not the topic we're discussing. I am not a financial expert, but I have been told by professionals, and read in credible publications, that financing entities are not thrilled about the idea that people can effectively 100% finance additional home purchases using HELOCs, rather than having a cash downpayment. That's the point I was making. My apologies for drawing an incorrect conclusion on the unrelated details.
    - bombcar 5y ago
      100% financing is problematic mainly because the "owner" has zero incentive to not walk away if the house goes below purchase price even if they could afford to keep up the payments. This puts the "bank" (read: bank and the investors the bank sold the loans to) in a precarious position, as a slight downturn in the market could result in a large percentage of loans defaulting.

sbarre 5y ago

Because it increases the risk of default. I say "banks hate this" as unsubtle shorthand here. Obviously they don't hate it enough to refuse people additional mortgages (it's all secured by tangible assets at the end of the day) but they certainly aren't as happy about it as if people had a 20% downpayment in cash rather than pulling it from a line of credit.

quickthrowman 5y ago
> Because it increases the risk of default. For who? Banks don’t hold mortgages on their books, they sell them to investors. I don’t think you understand how modern finance works.
- nameisname 5y ago
  Agreed. OP doesn't understand the situation.
- sbarre 5y ago
  Yeah I guess I am not trying to provide a super in-depth explanation of how finance works here, since that's not the topic we're discussing. I am not a financial expert, but I have been told by professionals, and read in credible publications, that financing entities are not thrilled about the idea that people can effectively 100% finance additional home purchases using HELOCs, rather than having a cash downpayment. That's the point I was making. My apologies for drawing an incorrect conclusion on the unrelated details.
  - bombcar 5y ago
    100% financing is problematic mainly because the "owner" has zero incentive to not walk away if the house goes below purchase price even if they could afford to keep up the payments. This puts the "bank" (read: bank and the investors the bank sold the loans to) in a precarious position, as a slight downturn in the market could result in a large percentage of loans defaulting.