You will love that once you open a HELOC, you can use the funds for any purpose you might find fit. As such, it can be your go-to second mortgage for financing a condo, debt consolidation, home renovations, divorce settlements, and funding education, among other suitable objectives.
Still unsure if a HELOC loan in Flagler County, Florida, is the right option for you? This guide closely examines how HELOC works, its best uses, and the benefits it will offer you as a disciplined homeowner with enough equity in your home. It also mentions the best ice cream spots in Flagler County for cold, yummy treats on those hot days.
What is a Home Equity Line of Credit (HELOC)?
A HELOC is a home loan that opens a revolving source of funds, similar to a credit card, which you can draw from whenever you choose. This loan is provided against the equity you have built in your home and typically has variable interest rates. However, some lenders can allow you to lock in a fixed interest rate for a specified period.
As a borrower, you can access HELOC funds in several ways, including through checks, a credit card connected to your account, or an online transfer. HELOCs also have a credit limit, and most lenders only allow you to borrow a maximum of 80% to 85% of your home's equity.
Your HELOC limitation will also be subject to your combined loan-to-value (CLTV), whereby the debt on your home, including your primary mortgage and HELOC, cannot exceed 85% of your home's appraised value.
HELOCs only charge interest on the amount borrowed; the total repayable amount depends on how you utilize your credit line.
Compared to other financing methods, HELOCs offer lower interest rates and better terms, which highly favor homeowners with more equity in their homes, good FICO scores, good repayment history, and a low debt-to-income ratio.
How Does a HELOC Work?
When you take a HELOC, you will be given a credit line that will remain open for a set time frame. This initial phase is known as the draw period, during which you can continuously borrow funds whenever you choose to.
The draw period usually lasts up to 10 years, and you will be required to make interest-only repayments as you keep borrowing until you exhaust your credit limit or the period ends. To pay off your credit faster, you can choose to make both interest and principal payments during this phase.
Once the draw period ends, a HELOC's second phase, known as the repayment period, will kick in. You will pay back your principal and any particular interest during this period.
You will not be able to borrow any more money during this phase, which usually lasts between 10 and 20 years. Failure to repay your entire HELOC debt during the repayment period, your lender can repossess your house as it is your loan's security.
To qualify for a HELOC, lenders will first expect you to have enough home equity, which is your home's current value minus the outstanding mortgage balance.
If you have sufficient equity, other qualification requirements will include a FICO score of at least 620, a good repayment history, a debt-to-income ratio no higher than 40%, and enough income or earnings to pay off your line of credit.
HELOC for Condos in Flagler County, Florida
Condos are currently the hottest properties in Flagler County, Florida, and if you would love to own one, you should consider financing your purchase with a HELOC.
Typically, when purchasing a condo in Florida, you not only have to satisfy the eligibility criteria for a mortgage but also have to bear with your lender scrutinizing and approving your condo association.
This always leads to complications as your lender will analyze your association's funds with a focus on how much is allocated to reserves. There will also be the question of the number of owner-occupied units and investors that must not exceed a specific limit, making it harder for you to get approval for the funding.
Luckily for you, all these are problems that you can avoid with a HELOC, which has a limited condo review process that does not get into details that might break your deal. Essentially, this means no verification of the Fidelity bond coverage, evaluation of the number of investors and owner-occupied units, or scrutiny of the funds directed to reserves.
You will also be able to borrow more funds when you combine a HELOC with your primary mortgage, significantly reducing your down payment.
Your primary mortgage will cover 75% maximum financing, while a HELOC covers 15% for a 90% combined financing of your primary residence. This reduces your down payment to only 10%, and the best part is that you will not need mortgage insurance.
Using HELOC for Divorce Settlements
Handling a divorce is never easy, and a common challenge you are most likely to face as ex-couples is what to do with the home equity you have built together.
It does not make it easier that time is often not on your side and getting a home's equity in cash is quite an uphill task as most lenders do not offer cash-out refinances above 92% loan-to-value ratio.
However, a HELOC can be a way out for you as it provides up to a 100% loan-to-value ratio on your home's equity. You can, therefore, use HELOC for divorce settlements in Flagler County by opening a line of credit for 50% of the equity in your home.
This will enable you to buy out your partner without opting for costly alternatives, as the funds will be available in a few weeks.
Using HELOC to pay up your spouse their half of the home equity will also save you from having to refinance the property and potentially losing the excellent interest rate on your first mortgage. You can further choose to lock in an interest rate on your HELOC and not worry about fluctuating rates in the future.
Using HELOC for Home Improvement and Renovation
Home renovation is one of the most financially demanding projects you can ever undertake as a homeowner. A common way to finance these projects is by taking personal or renovation loans, which are often too costly.
A home renovation loan, for example, relies on your home's future value and has high closing costs that make it quite expensive. On the other hand, most personal loans attract high-interest rates and significantly limit the amount you can qualify for.
A practical way to avoid these limitations is using a HELOC for home improvement and renovation in Flagler County, Florida. With a HELOC, you will quickly get approval for the credit line as it has flexible underwriting requirements.
It is also based on your home's current value, has low to no closing costs, and offers more flexibility as you can continuously draw from your credit line over ten years.
When you use a HELOC, you can borrow a large amount of cash at once, allowing you to complete your home renovation project without facing any problems.
You might also be eligible for tax deductions if you use a HELOC for home improvement, which helps reduce your financial burden.
Note that these tax deductions are limited and will only apply to the interest charged up to a specific limit based on your HELOC loan amount and outstanding primary mortgage.
Benefits of a Home Equity Line of Credit (HELOC)
Besides the convenience of allowing you to open a credit line against the equity you have built in your home, a home equity line of credit (HELOC) offers many other benefits.
Unlike a home equity loan, which many people compare it to, a HELOC will provide you with the following advantages:
Low to no upfront costs - HELOCs have low or no closing costs, making them less expensive than home equity loans and more favorable to borrowers who want top value from a loan. Most lenders also offer special introductory offers to their customer bases, such as zero fees and lower interest rates, making it cheaper to acquire a HELOC.
A higher loan amount - A HELOC can offer you a credit line of as high as 85% of your home's equity, as this loan is secured against your property. Remember that most lenders do not offer a loan-to-value ratio of more than 80%, but this can vary depending on your income, FICO score, repayment history, and debt-to-income ratio.
Flexible repayment options - A HELOC has a 30-year term, but from the draw period that lasts ten years, you are free to start paying back the principal you borrow. With proper planning, paying off your HELOC will not be burdensome as you are free to make payments at any time without the risk of any penalties.
Lower interest rates - Compared to most conventional loans, HELOCS have relatively lower interest rates. This makes them an excellent financial vehicle for debt consolidation and financing significant expenses such as home renovation. Remember, HELOCs have variable interest rates that may change over time.
Interest is only charged on the amount you use - While home equity loans charge you interest on the amount you qualify for, HELOCs only charge you interest on the amount you borrow. As a borrower, this gives you the freedom of having a credit line that you can turn to when there is a pressing financial need without worrying about paying interest for funds you do not use.
No restrictions on how you use your credit line - HELOCs have very few limitations on how you can use your credit line, providing the flexibility to have a source of funds that will be handy for various purposes. Common ways to spend these funds include home renovation, divorce settlements, consolidating debt, and education/medical expenses.
Tax deductions may apply to interest - If you use a HELOC for home improvements, you may be eligible for tax deductions. While you can only claim these deductions from your interest up to a specific limit, this can save you a lot in the long run.
- Ability to lock in your interest rate - Most HELOC lenders now provide borrowers with fixed-rate options whereby they can lock in a fixed rate on a portion of their loan for a specific period. Though this option often comes with some extra fees and a higher initial rate, it is a great way to protect yourself from market shifts in the future.
HELOC vs. Refinancing - What is The Best Choice For You?
Cash-out refinancing and second mortgages are the go-to options for converting your home's equity into cash. As a homeowner looking for the best choice between a HELOC and refinancing, here is why you should consider a HELOC:
With a HELOC, you qualify for up to 85% of your home's value, unlike cash-refinancing, which has a maximum limit of 80%.
HELOCs have low closing costs, unlike refinancing, that have considerable initial costs.
HELOCs have low-interest rates and give you a credit line that you can access for an extended period.
- You may qualify for tax deductions if you use a HELOC for home improvement.
Since a HELOC operates as a credit line, you do not receive a lump sum in your account, as with cash refinancing. Instead, you have a source of funds from which you can continuously draw, repay the principal if you want to, and borrow some more until your draw period ends.
5 Best Ice Cream Shops in Flagler County, Florida
One of the best ways to beat the Florida heat is by having a cold, yummy treat, and few things beat the thrills of having delicious and well-prepared ice creams.
Fortunately for you, there are so many fantastic options in Flagler County, and here are the five best picks for you and your loved ones:
Twisters Ice Cream Café - Would you love to try some of the most tremendous handmade hard and soft ice creams in Palm Coast? Twister Ice Cream Café serves some of the best hand-churned ice creams in the broadest array of artisanal flavors, such as maple guava, orange pineapple, and apple crisp. This little ice cream parlor also serves Italian ice, smoothies, Sundae, and milkshakes.
The Waffle Cone - The Waffle Cone is conveniently located at the heart of Flagler Beach and is a must-try after a fun-filled day at the beach. You will instantly love its retro theme and enjoy the exciting range of ice cream flavors, from creative options like caramel brownies to classics like chocolate and vanilla. Do not forget to try out their brownie sundaes for a more exhilarating experience.
Surfside Shakes - Say goodbye to self-control at Surfside Shakes in Flagler Beach, where you will go wild with the variety of frozen concoctions served. All year round, season specialties are available, so you can always expect an exciting surprise. Keep those memories by taking a selfie or family pic in front of their colorful murals.
Purdue's Tropical Flavored Ice - While Purdue's Tropical Flavored Ice do not serve your usual ice cream, they have established themselves as an ultimate location for cold treats. Here, traditional Italian water, chocolate yogurt, and cream ices come in equally exciting flavors, such as extreme sour cherry, cotton candy, and vanilla.
- Sally's Ice Cream - Sally's Ice Cream is right next to the beach and stands out for its magenta-colored building, which always attracts attention. You can always expect more ice cream flavors than you can order, from dairy-free and sugar-free options to oldies and kid flavors. When here, be a little carefree and try different flavors as you enjoy the stunning water views.
The Bottom Line
As a homeowner in Flagler County, Florida, who has steadfastly built equity in your home and needs cash but does not want to refinance, a home equity line of credit (HELOC) is a suitable option.
This line of credit will allow you to access funds for various purposes such as home renovation, medical expenses, debt consolidation, and divorce settlement.