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Ask Dr. Don

Changing houses and keeping HELOC

Dear Dr. Don,
Can a person with a home equity line for overdraft protection move that line when selling their current home and buying a new home?

I want to buy a different house because I have fallen down the stairs here twice, the radon gas is just enough to bother me (whereas it wouldn't bother anyone else), and my ex-boyfriend keeps stalking me. So I want to switch the second mortgage to the new house. Can I do that and how to I get the bank to work with me on this?
Kathryn Carryover

Dear Kathryn,
When you sell your existing home all loans have to be paid off at closing, including your home equity line of credit. That's because it's your equity in the home that secures the credit line. If you are just using the HELOC for overdraft protection, you shouldn't have much, if any, balance on that line.

You'll then use some or all of the cash proceeds from the sale as the down payment on your new home. The down payment is your equity in the new property. You can take out a new HELOC based on the equity created by your down payment. The lender's loan-underwriting standards will limit the size of the available credit line.

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Alternately, you could put some of the money into savings and link the savings account to your checking account as your line of protection against overdrafts. This approach lets you avoid the closing costs associated with a new HELOC. Although closing costs for HELOCs are often in the hundreds vs. the thousands paid when closing on a new first mortgage, if the goal is overdraft protection, then having the money sitting in a savings account beats spending the money in closing costs.

Recognize that moving may not stop your ex-boyfriend from stalking you. The National Center for Victims of Crime's Stalking Resource Center can help and provides information on stalking laws in your state.

Your state or local government may have laws that require buyers or sellers to test for the presence of radon and take steps to mitigate its presence in the home prior to sale. If you know radon is a problem in your home, you're obligated to disclose it when selling your home. Talk with a real estate agent in your area about what's required in your community.

Since you're going to have to disclose and possibly control your home's radon problem before you sell the house, you should consider fixing the problem now. Learn more Myths and Facts about radon on the EPA Indoor Air Quality site. Your myth is that levels that bother you won't bother someone else. Radon is colorless, odorless and tasteless. Long-term exposure is linked to increased risk of lung cancer, especially in people who smoke.

-- Posted: Jan. 14, 2003

Read more Dr. Don columns
See Also
FAQ on leveraging your home's equity
What's the difference between HELOC and a home equity loan?
Financial advice glossary
More Dr. Don stories

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