These days the banks normally finance only the 80 percent of your home value appraised today. A home equity line of credit, even though it might be paid of completely, has its entire line value counted against your total outstanding if the line is still open.
Therefore, if you are in the market shopping for a mortgage, the first question you are asked is the amount of mortgage you need. To keep the value of mortgage you need low, better first close the line of credit if it is still open.
Closing of the home equity line of credit is normally not possible on line, even though you might have been making all your payments from there. In order to close, the banks need the last payment only through a personal check or a cashier’s check along with a letter stating your intention to close the line of credit. After you have made the payment, the bank itself takes about a week to process before it would even give a letter that says you have paid off the full amount. Please note, that paying off the full amount does not mean your line has been closed. The letter that proves that the line of credit has been closed is issued by the bank only after about a month’s time.
The line of credit can take more than a month to close before your records in the county office and the bank get updated. If you try to refinance before the process to close the line of mortgage is complete, your refinancing bank might still see outstanding against your line of credit whereas you would be under the assumption that the line has been closed and all is taken care of. This creates confusion and grief and refinancing your home mortgage becomes a pain.
In case, you have started the refinancing process and it has not been a month after you closed the home equity line of credit, your broker should take some extra pain and contact the county office to get a letter stating that there are no liens pending against your home. Without this extra step, the confusion between the bank and you only grows and if the relations become sour you can jeopardize the whole mortgage process. Going to another bank can prove to be costly, as the next bank would do a credit check again and can see that another bank had rejected your mortgage earlier.
