You can tap into your home's equity for a revolving credit, where you borrow the amount you need and pay it back after a set time, usually 20 years. One of the best things about a HELOC is that it has flexible terms, you will enjoy low-interest rates, a tax-deductible interest, and you can use the funds for any need.
But before applying for and taking out a HELOC loan, you should understand how HELOCs work to know if it's the right option. Here's what you need to know about HELOCs, how they work, and how to apply for one.
What is a HELOC Loan?
A HELOC is a line of credit secured by your home and works like a credit card where a lender offers you a credit limit. And as you withdraw the funds, your available amount decreases.
With your home being one of the most valuable assets, you should use a HELOC for significant expenses such as medical bills, education, or investing in home renovations.
How Does HELOC Loan Works
A HELOC is a revolving line of credit where you borrow funds up to a limit set by the lender and pay it back over time. Unlike a home equity loan, you don't receive a lump sum but rather withdraw what you need. And you only pay back what you have spent, including the interest, at the end of the borrowing cycle.
HELOCs generally charge a variable interest rate, so your monthly payments may fluctuate throughout the loan term. You may be able to switch to a fixed interest rate, so check with your lender before signing up for a HELOC. But lenders often offer a low introductory rate at the start of the loan for a short time, usually six months to a year, before changing the rate.
There are two periods in a HELOC:
Draw period - In the draw period, you can borrow funds from your home equity line of credit for up to ten years. There is no limit to how much you can withdraw, provided you don't exceed your maximum credit limit. During this period, you only pay back the interest on the amount spent. Once the draw period expires, you can't withdraw from your HELOC.
- Repayment period - The repayment begins once the draw period ends, and you make payments on what you spent, not your entire line of credit. This period lasts between 10 and 20 years, and you pay back both the interest and the principal. Most HELOCs charge variable interest rates, meaning your monthly payment may fluctuate throughout your repayment period.
How to Qualify for a HELOC Loan in Jefferson County, Florida
Access to your home's equity can help you get quick cash and take care of some large projects. A HELOC provides a convenient way to borrow money whenever in need, but you must meet some minimum requirements.
The approval process for a HELOC will vary according to each lender, although lenders will generally consider the following factors:
Debt-to-Income Ratio - Your debt-to-income ratio (DTI) greatly influences your HELOC's interest rate and payment terms. The DTI shows lenders how much of your monthly income goes towards debt payments and if you can take on more debt. As a rule of thumb, lenders require a DTI of 36% or less. But most HELOC lenders will approve a DTI of 43% and some up to 50%.
Home Equity - Most lenders require a minimum equity stake of 15 to 20 percent, which you find out by calculating your loan-to-value ratio (LTV). The LTV is the current value of your home, less your existing mortgage or any other loans on your home. You must have an LTV of 80% to be able to finance 80–85% of the current value of your home.
Credit Score - While each lender may have varying requirements for approving your HELOC, having a high credit score has many advantages, such as a higher chance of approval. Regarding what credit score range you should aim for when applying for a HELOC, most lenders require a credit score of 680. Having a score of 700 is ideal, but some lenders may still approve as low as 620.
- Consistent Income - One of the first things lenders consider when evaluating your HELOC application is your income. You must have a steady income to pay back your HELOC, and lenders use your income to determine how much they are willing to lend you. A stable income shows lenders that you can make timely payments on your HELOC.
How to Obtain a HELOC in Jefferson County, Florida
Preparation is critical when applying for a HELOC since you know what to expect. Entering the application process without the proper information could slow you down, but getting a HELOC is as easy as getting a mortgage.
Here are the steps to follow when applying for a HELOC:
Find a HELOC lender - The mortgage industry has vast differences in the interest rate, repayments, and whether or not the lender charges fees. Finding the right lender involves comparing quotes from multiple lenders for the best deal. You may negotiate with your preferred lender better terms with these rates, and they may offer you an introductory rate with favorable terms.
Submit your HELOC application - Once you find a lender, it's time to complete and submit your HELOC application. Depending on the amount of HELOC you want to borrow and LTV, your lender may request a bank statement, proof of home ownership, and documentation on any current liens or debt on your home.
HELOC loan approval - If your financial standing is in order, the lender may request an appraisal to evaluate the current market price of your home. Your lender may set up the appointment, and you will pay the appraisal fee. During this stage, the underwriter also assesses the financial documentation you submitted along with your application. If everything checks out, the lender will approve your application, and you will proceed to close.
- Closing - Following your HELOC approval, the lender will inform you of how much they are lending you, including the interest rate and the repayment schedule. They will then give you the HELOC documents to review and agree to the offer within three business days. The loan will become official once you sign the documents to complete the transaction and have access to your funds.
HELOC for Condos in Florida
You'll never go wrong with investing in a condo in Florida, and you can tap into your home equity so you don't miss out on this lucrative opportunity. A HELOC offers you a unique chance to take it out as a second mortgage covering 15% of the purchase price while your primary mortgage takes up 75% of the buying price.
There are several advantages to financing your condo with a HELOC:
Investing in a condo with a HELOC gives you a combined 90% funding from both the first mortgage and the HELOC.
The lender requires a limited review, so that you won't fill out the complete condo questionnaire.
Lenders cannot examine the HOA budget or scrutinize the reserve funds.
The underwriter does not consider the number of owner-occupied units.
- HELOCs do not require verification of fidelity bond coverage.
A HELOC offers you the flexibility of financing your condo without requiring strict repayment terms. Generally, personal loans, credit cards, and unsecured loans have higher interest rates.
It may be more cost-effective to use a HELOC to finance a portion of your new home's costs than other types of loans.
Why HELOC is Great for Divorces
During a divorce, buying out your ex-spouse's equity in the home is common, and if you can't afford the buyout, you can take out a HELOC as a second mortgage, cash out on your home's equity, and buy out your spouse's portion.
The best part of taking out a HELOC is that it is a separate loan and doesn't affect your first mortgage. It also allows you to lock in an attractive interest rate on the first mortgage and protect you from interest rate fluctuations.
Using HELOC for Home Improvement or Renovation
It is common for homeowners to borrow money from a HELOC mainly to renovate their homes. HELOCs allow you to borrow whenever you need financing and only pay interest on the amount you borrow, which offers the flexibility to spread home renovation projects over the years.
Using a HELOC to renovate your home increases its value with minimal closing costs and the advantage of allowing interest deductions.
Advantages of Home Line of Equity (HELOC)
If you are interested in converting the value of your home into money to cover different projects, a home equity line of credit offers many advantages, which include:
Funds are Easy to Access - A HELOC offers easy access to funds, one of its most significant advantages. It is an account with a lender from which you can borrow whenever you want with a pre-approved credit limit. All you need to do is to withdraw from your HELOC and repay the funds later. As a result, even if you run out of money, you won't have to worry about your purchases.
HELOCs are Tax Deductible - Under certain conditions, HELOC interest is deductible. You must use the funds for home improvements to the collateral property, build or buy a home. Interest paid on funds used to pay for any other purpose isn't tax deductible. But the interest would be deductible in the case of constructing a garage on a home.
HELOCs are Flexible - A HELOC offers you the flexibility of borrowing small amounts from the available credit instead of withdrawing the funds all at once, which is manageable if you have an ongoing project. HELOCs also have no limitations on how to use the funds; you are free to use them for debt consolidation, paying bills, or remodeling your home.
- Lower Interest Rates - A HELOC offers you lower interest than personal loans or credit cards since you use your home as collateral. During the first year, your lender may provide you with an introductory interest rate which, in most cases, is lower than the rate on your primary mortgage.
HELOC vs. Refinancing - What is the Right Choice For You?
HELOCs and refinancing are home-secured loans and are attractive options because their interest rates are typically much lower than unsecured debts, personal loans, and credit cards. They both allow you to access financing quickly and have no restrictions on how to use the funds.
The main difference is you receive the proceeds as a lump sum with refinancing. While HELOCs allow you to borrow from the credit line as needed, it is open for withdrawal until the draw period ends. Your minimum payments can also vary depending on how you use the line of credit.
A HELOC is the right choice if you need access to revolving credit for unforeseen emergencies and variable expenses. It is also a good option if you have a recurring project and don't know the total cost at the start. And if you need more funds, your line of credit will cover it without requiring you to apply for another mortgage.
With a HELOC, you can also take advantage of its numerous benefits. It offers you the chance to borrow up to 85% of the value of your home, compared to 80% with refinancing. Additionally, you save on closing costs, as refinancing can cost 2%-5% of the loan amount. And not forgetting that the interest on HELOCs is deductible.
5 Best Ice Cream Places in Jefferson County, Florida
Jefferson county offers you a perfect blend of country living and modern conveniences. A scoop of ice cream is a refreshing way to end your day after a long biking ride or fishing in this historic county's natural lakes.
Here are some places where you can stop for a quick ice cream fix while in town:
The Arctic Scoop Ice Cream - The Arctic offers an endless selection of ice cream, from soft serve, bowls, cones, sundaes, and regular ice cream. There is a lot to love about this place. The service is excellent, and you enjoy your cold treat in a pleasant atmosphere, and they also offer a military discount. The cotton candy avalanche and the Resse's sundae are a hit; you should try them when you visit.
Bruster's Real Ice Cream - You will find yourself craving Bruster's ice cream once you try it. The ice cream is truly unique, rich, and creamy. They make ice cream orders on the spot, so everything is fresh with great flavor combinations. The chocolate almond coconut and the sea salt caramel toffee are a must-try.
32 Degree Creamery - The rolling ice cream is a must-try at 32 Degree if you've never tried it, and you will be spoilt for choice since they serve many options. If you're unsure about flavors, the staff will offer you many samples, and you choose the one you like. The rolled chocolate with banana and the strawberry cheesecake is the top-selling flavors.
3 Nelsons Sandwich & Ice Cream Shop - 3 Nelson is a local family-owned business; you will feel at home once you step in. If you're craving ice cream, this is the place to be, and you will satisfy your sweet tooth with great flavors. The 3 Nelson don't disappoint with their generous scoops that come in a cone or a cup. You will undoubtedly want to try more of their flavors and come back for more.
- Nuberri - Nuberri is a vibrant spot that serves plenty of ice cream flavors, from the classic ones, such as vanilla and chocolate, to unique flavors, such as pink lemonade, coconut, and birthday cake. They serve the ice cream as a waffle cone in a cup with plenty of tasty toppings of fruit and candy, which you can add as much as you like.
HELOC Loan - The Bottom Line
Your home equity is a valuable asset and an essential part of your financial security as a homeowner. A HELOC offers you the financial cushion to cover significant expenses as you enjoy lower interest rates, flexible repayment, and a more convenient borrowing process.