Im aware that my credit is gonna take a big hit but I want to know what’ll happen to me down the road.
In: Other
It’s unlikely that a bank would give you that much. Maybe up to 90%, but they don’t like to refi more than that.
The banks would sell your house, and keep all the money.
You are likely not going to be able to get a line of credit greater than your available equity. Available equity = value of house minus remaining loan.
So if you go into foreclosure the sale of the house will cover the loan and the line of credit.
As others have said, you won’t get 100% of the equity out. That creates too much risk for the bank.
But if you do this and then stop paying, the bank will foreclose and sell your house to recoup their losses. If they sell for more than what you owe (unlikely) they have to pay you the difference (after all of their fees and costs). If they sell for less than what you owe, they can come after you for the remainder.
So you won’t profit off of this in any way, and you’ll torch your credit rating. There is no advantage to doing this.
They sell your home and smash your credit rating.
It’s not really a great idea now because you could just sell the home yourself and get more money out without the hit to your credit.
In the days leading up to the financial crash in 2008/9 people definitely did this though, cash-out refinance the home in 2006 when it’s worth a million dollars and then let the bank eat it when the price crashes in 2009.
Depends on the state and bank. If you borrowed more than the home sells for in foreclosure, then the bank may sue you for the deficiency. If you lied in the application, you may get prosecuted for fraud.
In 2007ish, a friend of mine sold his house and the buyer proceeded to take out 15 home equity loans from different banks all on the same day so they didn’t know about each other. Took years for the banks to sort out that mess and the buyer, who was associated with organized crime, got away with it.
If you planned to do this, it didn’t just happen organically, would that not be fraud?
You would have cancelation of debt income.
You turned non-taxable loan proceeds into taxable income. Congratulations.
Latest Answers