(Mar 26, 2023)
Do you need more insight on this line of credit? Read on for more information about this lucrative loan option.
What is a HELOC Loan?
A home equity line of credit offers a revolving credit line that your home secures. You could use the funds from this credit line for significant expenses or consolidate higher-interest rate debts. Most borrowers prefer this loan option because of its lower interest rates and tax deductions.
Like a credit card, your available credit gets replenished whenever you repay your outstanding balance. Essentially, you can borrow against the available credit if you need to. Most lenders will let you access up to 80% of your home equity. Besides, you can also borrow as little or as much as you need during the draw period.
Repayment terms typically span through 30 years. The draw period usually lasts for ten years. Remember that you can't exceed your lender's credit limit during closing. Once the draw period ends, you'll move into the repayment period that lasts for 20 years.
HELOC Phases
Typically, the home equity line of credit works on a 30-year model. The first ten years represent the loan's draw period, where you can draw as much money as you need. During this period, you can make interest-only payments on the HELOC loan.
After that, you'll have 20 years to pay off your spending. Lenders will usually require you to pay the principal and interest payments. However, making total payments during the draw period helps you avoid more significant amounts during the repayment phase.
How Does a HELOC Loan Work like a Credit Card
Like a credit card, you'll only pay interest on the amount you borrow and use. Besides, this line of credit offers lower interest rates, making it more attractive to borrowers from Highlands County. The lower interest rates also mean you'll have cheaper access to your home equity.
Borrowers can also take advantage of tax-deductible interest on this line of credit while drawing as much as they please.
75-15 HELOC for condos
The home equity line of credit can also provide seventy-five percent maximum financing on your first mortgage, and 90 percent combined funding on your first and second mortgages. These financing options are available for your primary residence.
Typically, lenders won't have the authorization to analyze any association budget. Also, they won't scrutinize the number of funds you direct to reserves. Lenders won't verify the fidelity bond coverage when your condo insurance review is complete.
Another advantage of the 75-15 HELOC is that your lender won't care about the number of investors and owner-occupied. You can also have a much easier loan application process. Overall, this credit line is ideal for Highlands County, Florida condos.
Eligibility Requirements for a HELOC loan
Like other mortgages, you must meet specific qualifications to qualify for this line of credit. Most lenders will assess your credit score, home equity, and loan repayment history, among other requirements.
While the qualification criteria might vary from one lender to another, here are some standard qualification requirements.
Sufficient Home Equity
Lenders will require you to have available home equity before approving your loan request. Essentially, the amount you owe shouldn't exceed the home value. In this case, equity refers to the amount that remains after you divide your mortgage balance by the home's current value.
Most lenders approve loans if you have 15% to 20% home equity. However, you won't borrow more than your loan limit, which depends on your loan-to-value ratio. Other lenders might also consider your combined loan-to-value ratio before determining your loan limit.
Are you wondering how you could determine your CLTV? A CLTV below 85% should suffice and earn your loan qualification. However, some lenders won't mind a CLTV as high as 90%. Add all the secured loans on your property and divide this by your home's value.
Credit Score
Your credit score helps lenders determine if you are a risky borrower. A higher credit score indicates that you are less likely to default on any loan. Lenders typically require a score that falls in the mid-to-high 600s. A score of 700 or higher makes you a more attractive borrower.
Besides earning your loan qualification, your credit score also determines the interest rates you'll get. A higher credit score ensures you qualify for a lower interest rate, helping you save more in loan repayment.
Repayment History
Besides assessing your credit score, most lenders need visibility into your repayment history. This history indicates how risky you are as a borrower. Lenders usually pay more attention to your payment history than other credit score components.
Your lender must ascertain that you won't be slack when repaying this second mortgage.
Income Verification
Prepare sufficient income documentation before starting the loan application process. It would help if you assured your lender that you have what it takes to clear the loan. Therefore, lenders will request income proof before approving your HELOC loan request. If you are a waged borrower, your lender will ask for your recent pay stubs and W-2s.
For self-employed borrowers, your federal tax returns prove your income status. You could also present benefits verification letters to demonstrate your social security benefits. Alternatively, you could apply for the loan with 1099 forms, benefit statements, or retirement award letters.
Existing Debts
Lenders prefer working with borrowers who have less debt. However, they'll consider your debt-to-income ratio to determine how your debt relates to your income. This ratio typically refers to your monthly debt payments compared to your monthly income.
Your DTI ratio will reveal whether or not you can reasonably manage to take on more debt. Most lenders will only consider you for loan approval if this ratio exceeds 43% to 50%. However, other lenders require even lower ratios than this.
Loan Application
Are you ready to tap into the home equity of your Highlands County home? Do you meet the qualification requirements of HELOC loans? Follow these steps when applying for this line of credit.
Compare Lenders
Shopping around is a sure way of getting an affordable lender who suits your specific cash requirements. Consider their interest rates, eligibility requirements, repayment terms, and charged fees. Ask around and compare different lender offers before proceeding to apply.
Also, you might want to work with an experienced lender who'll ease the application process. Reviews about different lenders will also give you a glimpse of what to expect from them.
Gather Documentation and Fill out the Application
After picking a lender, don't waste any more time. Start filling out the required application forms. Lenders with online application options should ease this process for you. However, when working with traditional banks and credit unions, you should have little trouble completing your application from a local branch.
Gather all the required documentation, like pay stubs, bank statements, and W2s. Ensure you liaise with your lender to determine the documentation required for this step.
Home Appraisal
If your lender approves your credit and income, they'll often need an appraisal that indicates your home's current value.
Most lenders will schedule that appraisal but require you to pay the appraisal fee. Set aside about $300 to $400 for appraisal.
Proceed to Loan Closing
After the appraisal, expect communication from your lender indicating whether you've received full approval. Your lender will also offer more details, like your interest rate and credit line limit.
Don't hesitate to sign the loan documents if the deal works well for you. Remember that your lender is free to add closing costs to the loan amount.
Access the Funds
You'll have three business days to determine whether or not you'll proceed with the loan. Afterward, you can access your HELOC funds and withdraw depending on your need.
Usually, the whole application process takes about four weeks. However, the process might take up to six weeks, depending on your lender or the application process complexity.
Ideal for Divorces
Using HELOCs while going through the divorce process lets you keep your primary mortgage intact. In these instances, this line of credit works as a second mortgage.
Use the funds from this loan to cover a divorce settlement payout - you'll get up to 100% combined loan-to-value in such instances. You can also qualify for this loan with little home equity. However, having significant equity in the home eases your chances of getting loan approval.
Besides, you won't have to refinance your loan, meaning you won't lose a great interest rate on your first mortgage. You could also lock in a favorable rate after closing. You'll also avoid agent fees and commissions often accompanying selling the home.
Previously, cash-out refinances offered an alternative for divorcing couples. However, refinances would double your mortgage rate. HELOCs provide a suitable option that will give you cash without requiring you to pay a higher interest rate. The line of credit will also ensure you can tap into 100% of your existing value.
Great for Home Improvements
Unlike typical renovation loans, which consider your home's future value, the home equity line of credit depends on the home's current value. You'll get better financing that can ease your home improvement initiatives.
Leveraging this line of credit for home improvement comes with multiple benefits. First, you enjoy low to no closing costs, meaning you'll improve your home without spending so much money. Besides, you'll get more flexibility in borrowing and repaying your loan amount. The underwriting guidelines also deliver unmatched flexibility.
HELOC Advantages
Here are the main benefits of taking out a HELOC loan:
Ultra-low Closing Costs
Most borrowers prefer HELOCs because they won't cost as much as full-blown cash-out refinances. You can find lenders without upfront closing costs if you shop around extensively. Some local banks, national banks, and credit unions can offer you a closing cost reprieve.
You could avoid assessment if you find a HELOC lender who only requires an automated valuation model. If you don't find a no-closing-cost loan, you might need to pay for home appraisal, credit reports, titles, and escrow/signing. Later costs include transaction fees, early termination, annual, and interest.
Essentially, this line of credit offers you a less expensive way of accessing your home's equity.
Borrow Large Cash Amounts
Lenders tend to offer more significant loans than personal loans because you use your home to secure this line of credit.
However, your home equity will determine how much you can borrow. Your income and credit score will also influence your loan amount. Be sure to assess what different lenders offer to find a loan option that serves you suitably.
Lock-in Rates
Are you worried that your initial rates might go up due to market conditions? Find a lender who'll offer the option to lock in or fix your interest rate.
With this option, you won't get exposed to rising interest rates that might pile up your balance. Besides, this option offers more stability in a rising rate environment.
Only pay for your Expenditure
For HELOC loans, you won't pay for any amount you don't spend. This feature makes this line of credit slightly different from other mortgages, where you'll pay back the whole amount regardless of how you spent it.
This loan option will work well for projects with more flexibility because you can't project their total cost upfront. Essentially, you'll be able to tap into a large amount of money if you need to without paying interest on the money you didn't use.
No Restrictions on Expenditure
You can use the cash from HELOC loans as you please. Most borrowers prefer using the funds to consolidate existing debt, start a business, pay medical expenses, or fund home improvement projects.
Using the loan for home improvement could earn you tax benefits. You'll enjoy deductions on interest paid on the line of equity.
Introductory Offers
Some lenders can waive some initial fees or offer you lower interest rates. These offers usually help to attract new clients.
While these offers are attractive, ensure that you assess other loan aspects before settling on a lender. All the exact introductory offers help you save money upfront.
Top Places to Get Ice Cream within Highlands County, Florida
Do you need creamy, buttery ice cream after a day in the sun? Here are the top ice cream spots in Highlands County.
Sebring Soda and Ice Cream Works
Get your favorite treats in a fun way. Browse through the selection of tasty ice cream flavors. Try out the old-style banana split or the Spumoni, which hardly disappoints.
The amazing ice cream served in a chill environment will serve you well. Make your way to this hidden gem in downtown Sebring for refreshing moments.
Paradise Ice Cream
This ice cream shop offers cone types, banana splits, and sundaes like those years ago. Stop by Paradise Ice Cream for scoops of Butter pecan served in chocolate and peanut waffle cones.
Alternatively, you could order the Cookie Dough ice cream, which is equally delicious. Find your favorite flavor in the wide selection that Paradise Ice Cream offers.
Carmen's Ice Parlor
Enjoy unique ice cream flavors whenever you stop by Carmen's Ice Parlor. Try out the diverse homemade flavors in this old-style ice cream parlor. This parlor has something for everyone - avocado, cucumber, sweet corn, and rose flavors.
The coconut flavor has tons of shredded coconut mixed in. The strawberry popsicle and cotton candy will also soothe your sweet tongue.
Pops Ice Cream
Make your way to Pops Ice Cream to cool off with an ice cream scoop. The many sundaes, malts, shakes, or floats are also ideal after a hot day on the beach. Order the gourmet hand dip ice cream if you prefer homemade flavors.
The chocolate peanut butter and key lime pie ice cream will blow you away. You could also try out the diverse vegan options.
Frostbite Ice Cream
Enjoy your favorite ice cream treats at Frostbite Ice Cream. This ice cream shop has the best sundaes, milkshakes, and ice cream collections. The Blueberry Sundae with pecans whip cream and a cherry topping is a firm favorite among regulars.
Make the Most of Your Home Equity with HELOC Loans
If you are cash-strapped, leverage the HELOC loan to tap into your home equity. With this line of credit, you can access low-cost financing in the housing market. Access a revolving line of credit and make continuous draws to cover home improvements and consolidate debt.
(Mar 26, 2023)
