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HELOC Loans in Escambia County, Florida: Learn About the Benefits and How They Work

The housing market in Escambia County is doing well, and you may want to take advantage of the increased equity in your home when its value increases. A home equity line of credit (HELOC) allows you to borrow against your home's equity and use the funds for home improvements, paying off debts, or funding any project.

HELOCs are second mortgages with low-interest rates, flexibility, and a long repayment period. With this home loan, you can borrow and pay back only the funds you've utilized. It's also a common way to pay for renovations, as interest on a HELOC is tax-deductible up to a set limit when you use it to build your home or make improvements.

Not sure if a HELOC is the right option for you? If you have sufficient equity in your home and are disciplined about repaying your debt, then HELOC is an excellent choice. This guide closely examines HELOC, how it works, and its benefits. It also highlights the best ice cream spots in Escambia County, Florida.

What is HELOC Loan?

A home equity line of credit (HELOC) allows you to borrow against your home equity when needed. By placing your home as collateral, you can obtain a HELOC to cover the cost of everything from renovations to paying off debts. Your monthly payment will fluctuate depending on the prevailing interest rates and the amount borrowed.

You can borrow a maximum of 85% of your home equity. Lenders usually limit your combined loan-to-value (CLTV) to 85%, which means your outstanding debt on your house, including your primary mortgage and HELOC, cannot exceed 85% of its appraised value. If you have a high CLTV, reduce your loan balance or wait until the value of your home increases.

HELOC offers you lower interest rates and better terms than other home equity loans since they use your home as collateral. Interest is charged only on the amount borrowed, whether you use some or all of your credit lines. The best rates are available to those with solid credit scores, low debt-to-income ratios, and more equity in their homes.

How Does HELOC Work?

A HELOC functions similarly to a credit card by allowing you to draw on the line of credit continuously as long as you don't exceed the credit limit. You can borrow the entire credit line amount and use as little or as much as you like, with the interest rate determined by your spending.

So, you must own a home and have sufficient equity to qualify for a HELOC. Since you're borrowing against your home equity to establish a line of credit, ensure your mortgage amount is lower than the home's market value. Your lender will also consider your credit score, debt-to-income ratio, and payment history.

Home equity lines of credit also consist of two main components - the repayment period and the draw period. During the draw period, you may borrow funds up to a specific limit, repay them, and keep borrowing until the period is over. This draw period usually takes five to ten years for it to expire.

During the draw period, you are only required to pay interest. But the interest may be charged monthly, depending on your withdrawal limit and the duration of your credit agreement. In addition, interest can be fixed or variable. The variable interest rate fluctuates according to the prevailing market rates.

The typical term of a HELOC is 30 years, and you will draw money for ten years. As soon as the draw period is over, the repayment period begins, usually lasting between 10 and 20 years. You'll pay your remaining principal and interest balance during this time, and you cannot borrow more money after the draw period.

If you have an interest-only HELOC, the draw period is only for paying interest payments, not the principal amount. And during the repayment period, you'll pay off the entire principal and interest. However, paying your principal during the draw period can help you avoid larger monthly payments during repayment.

HELOC for Condos in Florida

Purchasing a condo in Florida can be challenging if you have little or no experience with financing. Home buyers often do not realize that, in addition to having all the credentials to qualify for a mortgage individually, the condo association must also approve the mortgage lending for the project.

HELOC acts as a second mortgage; you should consider it because it is a convenient way to finance a condo in Florida. With HELOC, the lender cannot scrutinize the homeowner's association budget, which means the funds allocated to reserves are not subject to review. Also, verifying the bond coverage when reviewing the condo insurance is unnecessary.

Unlike the complete condo review process, HELOCs require a limited questionnaire review, meaning the underwriter is not concerned with how many condo units are owner-occupied. When a condo deal goes through a thorough review, the number of investors and owner-occupied units can potentially break the deal if they exceed the required limit.

Combining HELOC with your primary mortgage helps you borrow more funds with a low down payment and no private mortgage insurance. You can take out the first mortgage of up to 75% and HELOC for 15%, along with the first mortgage. Together, the two mortgages are financed at 90%, reducing the down payment to 10% and eliminating mortgage insurance.

Model house on a pile of coins

Why HELOC is Great for Divorces

Divorce has many stresses and pains, and figuring out what to do with your home equity does not make it any easier. During a divorce, the court may award half of the existing equity from the family home to your spouse, but getting the equity in cash may be challenging. HELOCs are a popular alternative for divorced couples.

Most lenders do not offer cash-out refinances above 92% loan-to-value ratio, but most HELOCs can provide you with up to 100% LTV on the equity in your home. Use HELOC to fund your divorce settlement by opening a home equity line of credit for 50% of your home equity, and you will receive the funds within weeks.

While maintaining your primary mortgage, you can use HELOC to tap into your home equity and buy out your partner's equity. HELOCs are generally placed over your current first mortgage and are therefore known as second mortgages. Thus, if your first mortgage has a high-interest rate, the second HELOC will not affect it.

Refinancing your home with HELOC is the best way to buy your ex-spouse out of the house. Not only does refinancing decreases your interest rate, but HELOCs allow you to lock in the rate after closing. You can lock in the rates two months before maturity on a HELOC. This way, you won't have to worry about fluctuating rates during the divorce process.

Using HELOC for Home Improvement and Renovations

A renovation loan might be an option for homeowners, but they rely on your home's future value. With a HELOC, you don't have to worry about closing costs, as they depend on current value. It also functions similarly to a credit card. And you draw any money you need, and you have ten years to repay it.

A HELOC has flexible underwriting requirements. It is easy to get approval for your HELOC, especially if you plan to use the funds to make improvements to your home, such as the exterior to boost its curb appeal, increasing your square footage, remodeling your basement, or upgrading your landscaping to increase the value of your home.

Not only does remodeling your home increase its value, but you may also be eligible for a tax deduction on the interest. The tax deduction is limited since you can only deduct interest up to a specific limit on your home loan debt after factoring in your HELOC and primary mortgage. You can now take advantage of these significant tax deductions.

Advantages of Home Equity Line of Credit

Your mortgage lender provides a Home Equity Line of Credit, which you can use to borrow against your home's equity. HELOCs are similar to second mortgages, and you can take out a loan based on the value of your house.

Here are the several benefits of getting a home equity line of credit:

  • Relatively Low Interest Rates - HELOCs typically offer lower interest rates and initial upfront costs than conventional loans and credit cards, making them a good option for consolidating debt or funding ongoing projects. The exact interest rate will vary depending on your credit score, but HELOCs have variable interest rates, which may change over time.

  • Pay for Only What You Spend - The HELOC will have the same terms as a credit card, and you pay for what you spend plus interest. It differs from traditional home equity loans that require you to repay the total amount regardless of whether or not you use the loan. You can use a HELOC in small amounts, borrowing only the money you need.

  • Flexible Payment Options - HELOCs offer a lot of flexibility when it comes to paying them back. Your HELOC timeline will depend on the amount you plan to borrow and your lender, but they may last as long as 30 years. For the first ten years, you will only need to pay interest. You can also pay the principal during the repayment period to reduce your balance.

  • You can Lock in Your Rate - HELOC providers now provide fixed-rate options, allowing you to lock in a fixed interest rate on a portion of the loan for some time. Though you may incur some fees and a higher initial interest rate, locking in your rate ensures you're not affected by rising interest rates after building up your balance.

  • There are Fewer Restrictions on Funds - HELOCs have a few limitations on how you can utilize the funds. You don't have to use the HELOC funds for home improvements, even though your house secures the loan. A HELOC works similarly to a credit card, allowing you to spend the funds on home improvements, debt consolidation, or pay your medical bills.

  • Tax Deductions may Apply to Interest - Tax benefits may be available when you use a HELOC for home improvements. If you use your HELOC to construct, renovate, or buy your home, you can claim the interest as a deduction. But the deduction is limited to a certain amount based on the combined interest on the first and second mortgages.

  • A Higher Loan Amount - A HELOC is a secured loan that uses your home as collateral, which means the lender can repossess it in the event of default. Because it's guaranteed, HELOCs typically offer higher loan amounts than conventional loans. In most cases, lenders prefer a loan-to-value ratio of no more than 80%, but your credit score and income may also affect the exact limit.

  • Special Introductory Offers - Several HELOC lenders offer promotional offers, such as reduced interest rates or waived fees for a limited time, to increase their customer base. With these offers, you can save some money upfront. Ensure you compare the rates and costs of multiple lenders before making a decision.

HELOC vs. Refinancing - What is the Right Choice for You?

Home equity lines of credit (HELOCs) and refinancing provide the most popular means of converting equity into cash. Though they can help you borrow against your home equity, for some, HELOC is a better option than refinancing your home.

Here's why you should consider HELOC than refinancing:

  • HELOCs allow you to maintain low-interest rates while accessing cash when needed.

  • HELOCs typically have lower closing costs than refinancing and other conventional mortgages.

  • A home equity line of credit allows you to borrow up to 85% of your home's value, as opposed to 80% when refinancing.

  • If you use your HELOC to improve your home, you may qualify for a tax break, depending on your circumstances.

Generally, HELOC gives you flexibility as you can borrow against it at any time, making it a popular choice for quick access to funds due to no interest charges for unused funds. HELOC is also the best option if you need to access your funds longer because of its extended draw period.

5 Best Ice Cream Places in Escambia County, Florida

It is impossible to think of frozen delights without thinking of ice cream. Luckily, Escambia County is home to tempting ice cream options. You'll have many choices with the many ice cream places available to satisfy your sweet tooth.

Here are spots that serve the best ice cream to narrow things down.

  • The Twist Custom Ice Cream - The Twist Custom Ice cream gives you a taste of old-fashioned ice cream parlors as you enjoy chocolate, twist ice, and vanilla ice cream flavors. They serve these flavors as the regular cone or as hand-dipped treats. But if you want to take your experience to the next level, opt for a banana split, classic or premium sundae.

  • The Neighborhood Ice Cream Parlor - The Neighborhood Ice Cream Parlor serves a variety of flavors, and they keep adding new flavors. When you have no idea what to choose, try to go with a cone loaded with two or more of your favorite flavors. Regarding the classics, you can't go wrong with the banana split, ice cream float, or brownie sundae.

  • Ice Cream Shoppe at Pensacola Beach - The Ice Cream Shoppe at Pensacola Beach offers tasty ice cream and a wide selection of candy. They serve dessert-inspired ice cream flavors such as oatmeal cookies, Hershey's chocolate bars, or caramel blondies. Top it off with candy on your ice cream cone or cup.

  • Bubba's Sweet Spot - Bubba's Sweet Spot offers more than just ice cream. You can choose from the plain, chocolatey, and fruity ice cream flavors and pair them with handmade caramel, chocolates, and other candies. The shop also serves your favorite flavors as milkshakes, cones, or bowls. They also offer sugar-free candies and nut toppings.

  • Tommy's Snoballs - Tommy's Snoballs offers endless options with more than 200 ice cream flavors. This spot lets you discover new flavors and satisfy your taste buds with their ice cream-stuffed Snoballs. Be sure to try chocolate, marshmallow, caramel, or cream toppings.

HELOC Loan - The Bottom Line

A home equity line of credit depends on your financial situation and goals. HELOC can be a great option if you need cash but don't want to refinance. You can use it to settle divorce matters and for home improvements and renovations that can add value to your home.

With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.

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