(Mar 30, 2023)
What is a HELOC loan?
HELOC stands for a home equity line of credit. It's a revolving line of credit secured by your home, which you can use to pay for large purchases like a new car or boat. As with any loan, you'll need good credit to qualify and pay low-interest rates.
HELOCs are available in all 50 states, so there's no need to live near the coast if you want one. They're also good if you have excellent credit and don't want to pay private mortgage insurance (PMI) like on an FHA or VA loan — or if standard rates are higher than what banks offer on HELOCs.
How do HELOC loans work?
A HELOC, or home equity line of credit, is a line of credit secured by your home. It's similar to a traditional mortgage in that you can use it to make large purchases—such as making home improvements or paying off debt—and also pay back the loan over time.
You're only borrowing what you need at any moment; as long as you have enough equity in your house (the difference between how much it's worth and how much is owed on it), the bank will give you access to more money whenever you want it.
The amount you can borrow depends on several factors - how much equity is available in your home; whether the house is appraised at its total market value or less than that; and other factors determined by lenders, such as credit score, income verification, and interest rate history.
The draw period for a HELOC
The draw period for a HELOC is the amount of time you can withdraw money. This varies widely depending on the terms of your loan, but it's usually anywhere from 5 to 10 years.
The longer the withdrawal period, the lower your interest rate will be—but also keep in mind that there may be limitations on how much you're allowed to take out each month (withdrawal limits vary widely).
How a HELOC can work like a credit card
You can use a HELOC to pay for something you want or need, but you don't have the cash to buy it. It's like a credit card in that you borrow money from your home and make monthly payments, but unlike a credit card, you get to keep using your home as collateral.
The best way to think about this is how much money you'd spend on a vacation if you didn't have an emergency fund! With a HELOC loan, you can pay for the vacation without having to save up for it first—and without worrying about paying off the balance within 30 days, like with most credit cards.
You only pay money on the interest that you borrow
With a HELOC, you can borrow as much as you need. Your lender will let you know how much they will allow and the maximum interest rate. The minimum amount borrowed with a HELOC is usually $5,000.
The concept behind these types of loans is simple - You only pay money on what you borrow and not the total principal until the end of the loan term or when it matures.
This means that if your mortgage payment is $1,250 per month for 30 years and it begins in 2022 with a 30-year term, then at maturity in 2052 (when all principal has been paid off), there would be no more monthly payments due after 2022 because all principal has been paid off by then!
A HELOC has lower interest rates
When you take out a HELOC, you're borrowing against your home. This makes the interest rate for a HELOC lower than it would be for other types of loans because the bank doesn't have to worry as much about you defaulting.
Additionally, most HELOCs allow borrowers to pay off loans early without penalties. When this happens, it stops accruing interest and quickly decreases the total cost of funding your project.
Also, remember that most people don't want to put themselves into financial trouble by closing their accounts without paying off their balances first (or by having unpaid balances).
A low credit score may prevent these individuals from getting approved altogether—even if they were approved, they might not qualify for enough funds upfront due to poor credit history—but this should not deter them from applying!
A HELOC has a tax-deductible interest
Interest on a HELOC is tax deductible. You can deduct the interest you pay on a HELOC, which will lower your taxable income by an equivalent amount.
This means you won't have to pay as much in taxes if you're paying down your HELOC with borrowed funds. This could benefit you if you use your home equity to finance renovations or other significant expenses!
HELOCs allow you to draw as much as you please
A HELOC loan allows you to draw as much as you want, from $10,000 to $100,000. This means there's no limit on how much money you can borrow.
However, unlike a traditional fixed-rate mortgage or credit card balance transfer loan, where the interest rate stays the same throughout the life of your loan, HELOCs have variable rates and, therefore, may increase over time.
If this happens before you finish paying off your HELOC funds and closing down the account—or before signing up for another extension period—it could lead to higher monthly payments than expected. It can also mean less money in your pocket at tax time because some types of debt qualify for tax deductions while others do not.
HELOCs are a flexible way to borrow money
If you need cash from your house, a HELOC could be an excellent solution for your situation because it has low-interest rates, easy application procedures, and tax-deductible interest payments.
A HELOC allows you to access funds for any reason—to pay for home improvements or repairs, pay off debt or make big purchases such as furniture and appliances—as long as it's within the limit of your loan amount set by the lender.
This flexibility makes them an excellent option compared with other types of loans, such as personal lines of credit, because no collateral is required for approval; you have enough equity in your home that can be used as collateral against the loan amount requested (25% minimum).
75-15 HELOCs for condos in Hillsborough County, Florida
The 75-15 program offers up to 75% financing on a first mortgage and 90% combined financing on your first and second mortgage for your primary residence. So, whether you're looking to finance your condo purchase or refinance your existing mortgage, HELOC can help you get the financing you need.
The other big difference between HELOCs and mortgage refinance is that lenders don't analyze the association budget when considering whether or not to approve a loan request.
There is no scrutiny on funds directed to reserve funds or used for upgrades without approval from homeowners associations (HOAs). A lender may ask for an HOA letter confirming compliance with all building codes and regulations. Still, otherwise, there is no verification of fidelity bond coverage after the review of condo insurance.
The 75-15 HELOC is outstanding for divorces
The HELOC is a second mortgage on your home and can be used in two ways. First, you can use the borrowed money to pay off the first mortgage. This is an excellent option if you want to wipe out your debt, but it's not available in all states.
The second way to use a HELOC is as a line of credit. You can draw down on the funds as needed, but you don't have to pay them back unless you want to. You can even use the money for big purchases or emergencies without worrying about paying interest.
This is great for divorces because it gives you access to cash without paying interest until later. If you need money now, you can get it from the HELOC without worrying about paying interest on it for years into the future.
You can leave your primary mortgage untouched. The HELOC can be used for anything, including paying off debts or buying new homes or cars. You must ensure that you have enough equity in your home before opening one up.
Some lenders are willing to offer a 100% combined loan-to-value ratio on this type of loan if you're divorced and need cash for alimony or child support payments.
You also don't have to worry about losing your current interest rate by refinancing your primary mortgage — which happens all too often when people try to consolidate their debts after getting divorced. If you're already married to a HELOC, refinancing your primary mortgage means giving up your current interest rate.
It is excellent for home improvements
The HELOC is based on current value, not future value, like a renovation loan. This means that you don't have to worry about whether your property will sell for the amount you need when you need it.
The closing costs are also significantly lower than a renovation loan. You'll only have to pay a few hundred dollars in fees and can save over $1,000 by eliminating the appraisal fee.
HELOCs also offer more flexibility in terms of borrowing and repaying the money. Unlike a renovation loan, which often requires interest-only payments during construction or renovation periods, HELOCs allow you to borrow and pay back all at once or over time with interest-only payments or even as an amortizing mortgage with monthly principal and interest payments.
If your home is worth more after renovations than before, you'll see an increase in its value due to work done on it. This added value can be used as collateral for another loan — like a home equity installment loan — which can help you raise funds for future projects without having to sell your house first!
What do I need to qualify for a HELOC loan?
To qualify for a HELOC loan, you must have equity in your home. You also need to have a good credit score, which means that if you don't have one already, it should be easy to get one by paying all of your bills on time and keeping up with your other financial obligations.
These are just some of the qualifications that lenders look at when determining whether or not they will provide you with a HELOC loan.
How can I use the funds from my HELOC loan?
You can use a HELOC to pay for various things. Some of the most common uses are:
Take out a HELOC to pay for unexpected expenses
If you have a home equity line of credit, you can use it to make purchases and pay for medical bills or other unexpected expenses.
You may have to pay an origination fee and interest charges, but the interest rate is usually lower than what you'd pay with a credit card.
Use a HELOC to save money on interest, consolidate debt and improve your credit score
If you're planning to use your home as collateral for a loan, then taking out a home equity line of credit could help you save money on interest payments and improve your credit score. Even better, if you pay off your credit card debt before closing on the HELOC, the lender will report that positive payment history to the credit bureaus.
That's why many people combine their HELOC with their existing mortgages into one big loan — saving money on interest by reducing their overall borrowing from one lender rather than multiple lenders.
For home repairs and renovation
Home renovations are the first thing most people think of when it comes to HELOCs. If you need new siding, roofing, or a kitchen renovation, HELOCs can be perfect for this purpose.
You need to submit an application and wait for the approval. After that, you can get started on your project right away! The money is already borrowed from the bank, so there's no need to wait for approval.
For paying off credit card debt and high-interest rate loans
If you have high-interest rate credit card debt or other loans that charge more than 20%, it's probably time to ditch them and switch over to a HELOC.
With a HELOC, the interest rate should be lower than what you're currently paying on other debts — which means more monthly savings in your pocket!
To start investing in real estate
If you have been thinking about buying a house but don't have the down payment or cash for a mortgage, you may want to consider using a HELOC loan. A HELOC is a second mortgage, which means that your primary residence will secure it.
In other words, if you don't pay back your loan, the lender can foreclose on your home and attempt to sell it to recoup their losses.
Top 5 Places to Get Ice Cream in Hillsborough County, Florida
Everyone loves ice cream, but where to go for the best? Here are the top 5 places to get ice cream in Hillsborough County, Florida.
Cold Stone Creamery
Cold Stone Creamery offers various ice cream flavors, toppings, cakes, and shakes. Their signature "Make-It-Yourself" concept allows you to create your dessert how you like it!
Ben & Jerry's
Ben & Jerry's is the original "hippie ice cream," made with all-natural ingredients and no artificial flavors or colors. Their unique flavors include Cherry Garcia, Chunky Monkey, and Half Baked.
Dairy Queen
Dairy Queen has been around since 1940, when it opened its doors in Joliet, Illinois. Their famous Blizzard treats have been a favorite among Americans for decades!
Orange Julius
Orange Julius was founded by Julius Freed in 1926 in Los Angeles, California, as a fruit stand that sold orange juice with milk and vanilla flavoring added to it. The chain grew into an international franchise and now serves more than 1 billion drinks yearly!
Shugah's Homemade Ice Cream & Yogurt
Shugah's Homemade Ice Cream & Yogurt has been family owned and operated since the 80s. They offer over 30 homemade flavors of ice cream, plus a large selection of toppings and candies.
The menu includes such favorites as Butterfinger®, Heath® Bar Crunch, and M&M's® Cookie Dough. They also serve milkshakes, floats, sundaes, and more!
Conclusion
A HELOC can be the perfect solution for many people when borrowing money. These loans are especially beneficial for those with excellent credit who want to use their home equity as collateral to get a lower interest rate than they would receive on a standard mortgage.
A home equity line of credit is available through most banks and credit unions, so you have many options when deciding where your next loan will come from!
(Mar 30, 2023)
