Thinking about getting a second mortgage in Holmes County, Florida? Our complete guide will teach more about HELOC, how it works, and its benefits.
What is a HELOC Loan?
A home equity line of credit is a line of credit secured by the borrower's home that they can use for anything. It works much like a credit card, as you can continuously tap into your line of credit during the draw period up to the credit limit.
You can access the entire credit line and draw as little or as much as you want, and you'll only pay for the amount you spend. This flexibility differentiates HELOC from installment loans, such as personal or home equity loans, where you get the entire mortgage amount in a lump sum upfront.
HELOC's relatively low-interest rate and flexibility make it a popular alternative for homeowners in Holmes County needing funding. However, it also comes with some risks and potential and potential drawbacks.
So, before you take out a home equity line of credit, it's wise to know how it works, so you can decide whether it's suitable for your financial needs.
How HELOC Loans Work
If you've applied for a HELOC, you probably already know it has two phases - the draw period and the repayment period. Combined, these two stages typically last up to about 30 years.
Before the draw period ends, it's always wise to take stock of your outstanding debt and decide whether you'll afford to pay it back, given the current rate on your loan.
The Draw Period
The draw period of a home equity line of credit works like open lines of credit. Your lender gives you a set line amount of money from which you can draw cash based on your home's equity.
You can use this money to make home improvements, pay off other high-interest loans, or do virtually any other purpose. You can take money up to the limit, repay it, and then borrow more cash as often as possible until the drawing stage ends.
The draw period usually lasts 5 to 10 years, during which only interest is due on the cash you're borrowing. However, your lender may charge you minimum monthly payments.
For instance, if you withdraw $50,000 at a 5% rate using a home equity line of credit with a draw period of 10 years and a 15-year repayment period, the minimum monthly payment during this stage would be $208.33. This represents only the monthly interest.
Experts usually recommend starting loan payments on your home equity line of principal credit balance during the draw period. That way, you won't be surprised by a sudden spike in your monthly loan payments once the draw period ends.
The Repayment Period
After the drawing stage ends, you can sometimes request an extension. Otherwise, your mortgage enters the second phase, the repayment period. From here on out, you'll no longer have access to additional cash and have to make regular principal-plus-interest payments until your debt disappears.
Many lenders usually have a 20-year repayment stage after the 10-year draw period. You must pay back the entire loan with interest at a contracted rate during this stage.
HELOC loans have many attributes that differentiate them from standard credit lines. However, the interest-only payments during the drawing stage mean payments in the repayment stage can double. For instance, payments on an $80,000 home equity line of credit with a 7% APR (annual percentage rate) will cost about $470 a month in the first 10 years when interest-only payments are required.
This jump in payments during the onset of the repayment stage can lead to payment shock in many unprepared HELOC loan borrowers. If the sums are too much, it can cause borrowers with financial hardships to default on their loans. And if you don't make the payments, you could lose your home.
Qualification Requirements for HELOC Loans
Qualifying for a HELOC loan is similar to qualifying for a loan refinance. You'll have to meet specific requirements before you can get this home equity loan.
While the exact requirements will vary from one lender to the other, you'll typically need the following:
Good credit - A credit/FICO score above the mid-600s will most likely help you get approved for the HELOC loan.
Reliable income - Some lenders will require proof of income to confirm whether or not you'll be able to make the loan payments.
Responsible payment history - Your lender may evaluate your past payment history to ensure you haven't made any late mortgage payments in the past.
Qualifying amount of equity in your property - You should have about 15%-20% home equity.
- A low DTI - The lower the borrower's DTI, the better. Consider discussing their qualifying debt-to-income ratios with your lender to get a loan potentially.
Generally, home equity line of credit requirements is similar to mortgage refinance. Ensure you review each so that you get the perfect understanding of the loan options available to you.
How HELOC Loans Can Work Like Credit Cards
A HELOC loan is offered by the financial institution or bank that holds your home mortgage. It's similar to a second mortgage; it allows borrowers to take money against the value of their homes, just like home equity mortgages may.
There are many reasons you may want to get a home equity line of credit, one of which is because they offer an alternative source of cash when you require one.
For instance, if you want extra funds for emergency repairs or unexpected expenses, but don't want to go through the hassle of getting a second mortgage, then applying for a HELOC loan could be a good alternative.
Another advantage of getting HELOC loans is that they work like credit cards. Here's how:
You'll only pay for the interest that you borrow
With HELOC loans, you'll only pay for the money you spend on the loan, plus interest. This is different from other home equity funding options, where you'd have to repay the entire mortgage amount irrespective of whether you used the money or not.
This flexibility makes a home equity line of credit perfect for home projects for which you're yet to know the total cost. You've got access to a large amount of funding anytime you need it, but you won't have to pay interest on any cash you don't use.
You can use the money for anything
You can use your home equity line of credit funds for whatever you want. Most borrowers use HELOC loans for debt consolidation, paying medical expenses, starting a business, or funding home repairs and improvements.
You may receive a tax benefit if you use your HELOC loan to fund your home improvement project. Homeowners can deduct any interest paid on the HELOC or home equity loan if used to purchase, build, or improve the property that secures the mortgage.
Lower interest rates
HELOC loans usually have lower interest rates than personal and home equity loans. As of August 2022, the average interest rate for a home equity line of credit of $30,000 was 6.5%. On the other hand, the average rate for personal mortgages was 8.73%.
Remember that the exact rate will majorly depend on your credit score. Securing the lowest rate possible will help save you a lot of money over the lifetime of your mortgage.
It allows you to draw as much cash as you need
Because HELOC is a secured debt product where your house acts as collateral — meaning your lender can seize it anytime if you default on your loan — you can draw as much cash as you need. Generally, the amount you receive depends on the equity you currently have in your property.
Most lenders will need an LTV ratio of 80%, meaning all the debt secured by your house — your primary home mortgage loan, the home equity line of credit you plan on using, and any other loan secured by your property — must not exceed 80% of the home's value.
As mentioned earlier, the loan limits can vary from one lender to another and may also depend on the borrower's income and credit score.
For instance, if your property is worth about $500,000 and your remaining loan balance is $300,000, you have an equity of $200,000 in your house. If your lender needs a maximum LTV ratio of 80%, you can receive a HELOC loan worth up to $100,000.
75-15 HELOC for Condos in Florida
A 75-15 HELOC loan is an excellent option when used for condos in Florida. It's similar to a second mortgage loan and enables you to borrow money against your home's value.
One of the fantastic benefits of 75-15 HELOC loans is lenders aren't authorized to examine the borrower's association budget. This means there won't be scrutiny on the amount of money directed to reserves.
Plus, compared to a complete review of the condo procedure, a HELOC loan needs a limited review, meaning the underwriter won't be looking for the number of owner-occupied units within the condo complex.
This is beneficial mainly because, in a standard full condo review, owner-occupied units are usually considered and can kill the deal if you have more units than the allowable threshold.
You'll also enjoy 75% maximum financing on the first mortgage and about 90% combined financing for the principal residence's first and second loans. That's why HELOCs are important for condos in Florida.
Great for Divorce
Divorces usually don't have a silver lining, especially when splitting up your shared equity. If you opt for a HELOC loan, it leaves your primary mortgage loan intact, meaning if you have a tremendous interest on your 1st mortgage, it won't be affected by the 2nd mortgage.
If you don't have the funding to payout your spouse, a home equity line of credit might be all you need. Home equity line of credit can also help with divorce settlement payout, which prevents you from refinancing your property and losing that great interest.
Moreover, you can lock in your rate after closing, so you won't have to worry about rate fluctuations when rates take a turn.
Great for Home Improvements
Let's face it; home improvements are expensive. While you have the opportunity to take out renovation loans, these mortgages are based on your home's future value.
A HELOC loan, on the other hand, is based on your home's current value, and unlike renovation mortgages, it comes with low to no closing costs.
As mentioned earlier, HELOCs essentially work like credit cards; the cash you draw is what you'll have to pay back, and the drawing period can last up to 10 years.
When you're remodeling your home, you'll be making upgrades and increasing its value, but one of the significant parts about all these is that the rate may be tax deductible.
Remember that there's a limit since you can only remove the interest up to $750,000 of your debt, which factors your loan and mortgage.
HELOCs are generally the perfect tool if you're looking for funding and don't want to refinance your house. You can use them as you please, which can be a perfect way to eliminate or consolidate debt.
This can be the best option, especially if you have enough equity in your property and the discipline to pay back the loan.
Top 5 Places to Get Ice Cream in Holmes County, Florida
With its knack for industry and sprawling farmland, it is no surprise that Floridians living in Holmes County can use the best of both worlds to create some of the most delicious ice creams in the country.
Although some people create seafood tours on the East Coast or take wine tours in California, Holmes County is one of the few regions in the U.S. where you can go for a full-fledged ice cream tour.
Whether you live in Holmes County or heading there for your summer vacation, you're sure to find many places that boast unique ice cream shops with handmade creations.
Below, we've compiled a list of the top 5 ice cream shops in Holmes County, Florida that you can't ignore.
Friendly Ice Cream Shop & Lottery - Looking for a fun way to get your ice cream? Friendly Ice Cream Shop & Lottery can use liquid nitrogen to freeze your ice cream creating your custom scoop. Whether you enjoy a filling banana split, lots of sprinkles, or a chocolate-dipped soft serve, you won't be disappointed by the choices on Friendly Ice Cream Shop & Lottery's menu. They also sell lottery tickets and bags of chips.
Brain Freeze - The Brain Freeze isn't your typical ice cream parlor. There are selections of old-fashioned and adventurous palettes with unique tastes and traditional flavors you can't find in any ice cream shop. Grab a cone or shake from this spot, and you'll undoubtedly want to return soon.
Miller's Grocery - Known as one of the oldest homemade ice cream shops in Holmes County, Miller's Grocery is always filled with hungry clients looking to indulge in frozen treats. This small town shop also offers plenty of feed choices, a full line of fuel, honey, and eggs for sale. If you like chocolaty or fruity flavors, you will have many options to settle for.
Shawn's Grocery - What better way to relax and cool off after a tiresome day than with your preferred cold scoop from Shawn's Grocery? Here, you're sure to find frozen custard, freshly made waffle cones, and other sweet treats that will make your heart explode with delight. Pair your scoop with a mouthwatering hot dog for a diner-style meal.
- Wayne's Grocery - With temperatures in Holmes County reaching incredible heights, there's no perfect way to cool off and relax than indulging in delicious frozen treats. Whether you're looking for the latest innovative flavors or old-fashioned spots offering the classics, Wayne's Grocery will surely satisfy you.
Should You Get a HELOC in Holmes County, Florida?
Taking out a home equity line of credit can be a wise financial decision if you need some cash to consolidate high-interest debts or fund your home improvement project. Since your house secures these mortgages, their interest rates are usually lower than unsecured loan products like personal loans and credit cards.
However, the extra mortgage payment with HELOC loans should be factored into the homeowner's monthly budget. It's also worth noting that lenders usually place a second lien on the home, and as a result, if you don't make the loan payments, you'll be putting your home at risk for foreclosure. So, before you apply for a HELOC in Holmes County, ensure you have a feasible repayment plan.