Can I open a HELOC if I plan to move in a year?

Life has a way of presenting exciting opportunities when we least expect them. As a homeowner, you’re in a unique position to make dreams come true. You’ve already built something valuable—equity that you could turn into cash.

Timing and strategy can turn a good move into a great one. Having a good handle on all the financial tools at your disposal could give you the confidence to make decisions that serve your immediate needs and your long-term vision. 

Let’s explore whether it’s a good idea to get a HELOC shortly before you move.

Can you get a HELOC if you're moving within a year?

You could apply for a HELOC even if you plan to move within the next year. 

A benefit would be convenient access to cash that you could use to make necessary repairs before you put your home on the market. You could also use a HELOC to cover moving expenses. 

A potential drawback is that you'll need to pay the HELOC off from the proceeds when you sell your home.

Lenders don't look at how long you plan to stay in your home when you apply for a HELOC. They're more focused on your credit scores, income, debt, and the amount of home equity you have. Home equity is your home’s current market value minus what you owe on your mortgage.

Now, should you get a home equity loan before moving? That's a different question. Before we get into the pros and cons of getting a HELOC before selling a home, let's dive into how a home equity loan is handled in the sale. 

What happens to your HELOC when you sell?

When you sell your home, you have to pay off your HELOC. 

Here’s the way a HELOC works. A HELOC is a secured line of credit. It’s guaranteed by your home, just like the mortgage that you took out to buy the property. You can borrow money from your credit line when you need it for the first few years of the loan. That's the draw period. When that ends, you repay what you borrowed with interest.

You can have multiple home loans secured by the same property. When you sell a home, each one is paid off from the proceeds of the sale. There's an order for repayment. 

Your first mortgage (the one you got to buy the home) gets paid first. Your home equity loan gets paid off next. You can’t take a HELOC with you when you move. 

Is a HELOC worth it? Key pros and cons

HELOCs have some attractive features and a few downsides. You have to decide whether the benefits of getting a HELOC and moving could outweigh the disadvantages. 

Pros:

• HELOCs give you flexible access to money that you can use for any purpose. You could use the money to fix up the home and possibly get a higher sale price.

• HELOC rates are typically lower than what you'd pay for a credit card or a personal loan. 

• If you have enough equity, the amount you can borrow with a HELOC could be much higher than what you could borrow with a credit card or personal loan. 

• Interest paid on a HELOC could be tax-deductible when you use the money to make home improvements.

• On-time payments to your HELOC could help boost your credit scores.

Cons:

• If your home's value declines before you move, there could be less cash left over from the sale after your HELOC and first mortgage are paid off.

• You might be required to advance your entire credit line initially, even if you don't intend to use all the money.

• HELOC payments are separate from your mortgage payment. This is a loan payment you’ll have to make in addition to all your other bills.  

• Unless you have a fixed-rate HELOC, your cost to borrow could change over the loan term. 

Aside from the pros and cons, consider what you want to do with the money. 

Home improvements. You could use a HELOC for home improvements. If the improvements boost your home's value or curb appeal so you can sell it for a higher price when you're ready to move, the HELOC could be a smart move.

Debt consolidation. A HELOC is a popular tool for consolidating debt. You could use a HELOC to pay off your credit cards and reduce or eliminate your revolving debt. Doing so could help you save money if you can get a lower interest rate on a HELOC than what you’re currently paying on your cards. High credit card balances can hurt your credit scores. HELOC balances don’t affect your credit standing the same way.

Moving expenses. You could use your HELOC to cover moving expenses or other costs associated with your move. 

Vacation. It’s generally not advisable to use a HELOC for a vacation or luxury purchase. Other than a great time, there's no tangible financial return on that investment. 

Think about how the money will be spent and what you stand to gain in return to decide if it makes sense to get a HELOC before moving.

HELOC alternatives to consider if you plan to move

Before you decide whether a HELOC is right for you, consider other ways to borrow in case one is a better fit. Here's a quick rundown of the options. 

• Personal loans. Personal loans let you borrow a lump sum and pay it back at a fixed rate. They're not tied to your home. 

• Credit cards. Credit cards may be a good fit if you have a card with a low interest rate. Shop around for cards that offer a 0% introductory rate for purchases.

• Family loans. Friends and family might offer you a loan. In some cases, interest-free. 

• Sell something. If you have extra stuff you no longer need or use, you could sell it. You can rustle up some cash and declutter your home ahead of the move, without taking on new debt. 

If you decide to move ahead with a HELOC before moving, shop around. Get a HELOC rate quote to estimate how much you might be able to borrow and what it'll cost you. Be sure the lender can check your rate with a soft credit check that doesn’t affect your score.