Wells Fargo HELOC Subordination Agreement: Everything You Need to Know
If you`re considering getting a home equity line of credit (HELOC), you might have come across the term “subordination agreement.” This is a document that`s required by many lenders, including Wells Fargo, before you can proceed with your HELOC application.
In this article, we`ll explain everything you need to know about Wells Fargo`s HELOC subordination agreement, what it entails, and why it`s important.
What is a HELOC Subordination Agreement?
A subordination agreement is a legal document that prioritizes one loan over another in terms of repayment. In the case of a HELOC, it`s an agreement between the lender of the HELOC and the lender of the first mortgage of the property.
The subordination agreement ensures that the first mortgage takes priority in the event of a foreclosure or any other legal action. This means that the first mortgage lender gets paid before the HELOC lender.
Why is a Subordination Agreement Required?
A subordination agreement is required because lenders want to protect their interests in case of default. If a borrower defaults on their mortgage payments and the property is foreclosed, the first mortgage lender gets paid first from the proceeds of the sale. The HELOC lender would then receive any remaining funds.
Without a subordination agreement, the HELOC lender could potentially receive more money than the first mortgage holder. This puts the first mortgage lender at risk of losing money, which is why they require a subordination agreement.
Wells Fargo`s HELOC Subordination Agreement
Wells Fargo is one of the largest HELOC lenders in the country and requires a subordination agreement for all HELOCs. The agreement is typically signed by the first mortgage lender, the HELOC lender (Wells Fargo), and the borrower.
The agreement outlines the terms of the subordination, including the priority of the first mortgage lender in case of foreclosure, the maximum amount of the HELOC, and the conditions under which the subordination agreement can be terminated.
It`s important to note that a subordination agreement doesn`t change the terms of the original loans. The borrower is still responsible for making payments on both the first mortgage and the HELOC.
Conclusion
Getting a HELOC can be a great way to tap into the equity in your home for big expenses like home improvements or college tuition. However, it`s important to understand the subordination agreement required by lenders, including Wells Fargo.
A subordination agreement protects the lender`s interests and ensures that the first mortgage lender gets paid first in case of default. If you`re considering a HELOC, make sure you understand the terms and conditions of the subordination agreement before signing on the dotted line.