(Mar 31, 2023)
Luckily, a HELOC loan can help you surmount most of the challenges you will face as a homeowner in Lafayette County, Florida.
But before you can enjoy this solution, there are a few things you need to know, all of which we’ve discussed in detail in this article. Read till the end to discover what a HELOC is, the projects it’s best suited for, and why you should go for it.
What are HELOCs?
A home equity line of credit (HELOC) is a specific amount of financial assistance that you, a homeowner and account owner, can use at your discretion and repay over a specified period, like a decade. The money you get from a HELOC is secured by the equity you have in your property, so you may lose your home if you default.
HELOCs have been active since around the Great Depression. But their popularity in the US rose in the early 2000s. During this period, financial institutions started heavily using ad campaigns to inform consumers about home loans. That may have contributed to this financial solution’s infamy.
Before the Global Financial Crisis that occurred between 2007 to 2008, people were taking advantage of spiking home prices. That is so because this aspect provided a quick way to boost equity, which borrowers used as collateral while taking out a HELOC.
Dos of HELOC Loans
There are many ongoing expenses and projects you can cover with a HELOC. These include:
Home improvements
If you plan on renovating your home and need financial assistance, your home equity line of credit can help. That is more so if you expect the project to carry on over an extended period and require a series of payments.
Considering the above, you can use a HELOC to:
- Buy new appliances
- Update cabinetry
- Replace your roof
- Upgrade kitchen counters
- Improve bathrooms
College tuition
Your home line equity line of credit can help you cover college tuition fees, provided one or more HELOC loan officers have prequalified you. This option may be better than conventional solutions like private loans because it offers better features such as extended repayment periods.
Besides, HELOC allows you to take out the money you need when you need it. You can take out a loan when it’s time to pay the school. Most importantly, as you’ll discover later, with your home equity line of credit, you only cover the interest for the finances you use.
Medical bills and expenses
Despite a HELOC being secured by your property, you can use it to cover medical bills. Like other expenses, your home equity line of credit lets you borrow the money you need, as long it’s within your predetermined limit, and cover them as they manifest.
You should probably refrain from using a HELOC to pay off unexpected but significant medical expenses. For instance, you can tap into your home equity line of credit whenever you need a c-section or gallbladder removal surgery, which can cost over $20,000 and up to $10,000+, respectively, in Florida alone.
Down payment
Would you like to purchase additional real estate but don’t have enough money to cover a down payment? In that case, we are glad to inform you that a HELOC can help you escape this predicament.
It’s an ideal option, more so if avenues like financial assistance from family, friends, or DPA (down payment assistance) programs have failed to get you where you need to be.
Retirement
Retirement comes with more than its fair share of concerns, especially for people with limited finances. For instance, you may worry about paying for quality healthcare, maintaining a sustainable income stream, and paying off significant debt.
A HELOC can help you face most of the challenges that arise from retirement. To begin with, you can use your line of credit to pay for significant projects like making your home elderly-friendly or riding out challenging periods in the investment market.
Don’ts of HELOC Loans
Having outlined the HELOC’s dos, here are a few projects you should probably avoid financing with a home equity line of credit:
Purchasing a car
Owning an automobile comes with numerous pros. A private car helps you to get to and from work freely, is convenient, and consumes less of your precious time compared to public means like carpools and buses.
Besides, in a country where 91.55% of all households had access to at least one automobile in 2020, owning your car is somewhat necessary.
But when all is said and done, purchasing a car using a HELOC isn’t the best idea, and the answer is simple. Putting your home in a position where you could potentially lose it for the sake of a convenient ride is lousy math.
Paying for a vacation
Admittedly, a much-needed vacation can do a world of good. That is more so since most people wrestle with daily life and work stressors non-stop. You need some time off to sit back, reflect, and unwind. Otherwise, you risk your mental well-being, physical health, relationships, and productivity.
Using a home equity line of credit to fund a long overdue vacation may not be a good idea. Again, when you take out a HELOC, your home acts as collateral. So, losing the property becomes a real threat if you cannot repay your loan.
Splurging
A recent survey indicates that a significant chunk of adults in America plans to go all out with their money shortly. Some of the plans they have in mind include traveling locally and internationally, investing in extravagant home décor, and buying expensive clothing.
Suppose you, too, plan to go big or go home soon by splurging. In that case, using a home equity line of credit shouldn’t even be an option. Would you instead use a HELOC to buy limited-edition sneakers and risk being stuck with a loan for more than a decade or wear a pair you can afford out-of-pocket? That’s right.
Using interest-only payments as an escape route
HELOC lenders often allow borrowers to keep monthly payments at a minimum by paying interest only for a specific period. This offer is alluring and beneficial, especially to people facing hard economic times. But it has its downside.
By letting you cover interest, an interest-only HELOC loan staves off one eventuality - you will have to pay off the principal amount at some point. And to make matters worse, when the time comes to pay both the original amount and interest, your financial obligations will escalate.
Putting off debts you don’t plan to clear
Countless homeowners use HELOC programs to pay off credit card debts. They mostly do that to enjoy significantly lower interest rates and gradually avoid the hustles that crop up when clearing credit card debts.
Unfortunately, unhealthy financial habits often encourage people to max out their credit cards after using a home equity line of credit to pay off their debts. That is a terrible plan overall and could get you stuck in a loop that’ll end with losing your home.
75-15 HELOC for Condos Explained
Diverse Floridians, ranging from empty-nesters to investors and first-time homebuyers, are buying condos in droves. This trend is rising because condominium units are generally more affordable than average family houses and easier to maintain.
Presently, the Sunshine State boasts at least 1.5 million residential condos. Suppose you have a home but would like to purchase a condominium and use it for unforgettable vacations or turn it into a profitable investment property but don’t have enough to pay for it out of pocket. In that case, a HELOC can sort you out.
Generally, your home equity line of credit can give you access to finances equivalent to 75%, which is the first mortgage. Additionally, you can apply for a second mortgage (15%). That is what professionals call the piggyback.
It comes simultaneously with the first loan and is an indispensable solution for borrowers with inadequate down payment savings and similar issues. But, with a 75-15 loan, you get 90% combined financing.
If you wonder whether using a 75-15 piggyback loan to finance a condo is a good idea, the answer is a resounding yes. That is so because this solution comes with the following:
Limited condo reviews
Most lenders consider HELOCs lower-risk loans. As such, they subject these financial solutions to limited condo reviews.
A limited condo review is a gold mine if you plan to make a condo your primary residence. That is so because it makes it easier for you to prequalify for a HELOC. Plus, limited condo reviews are associated with more reasonable underwriting standards and demand fewer documents from borrowers.
Skips condo budgets
Some conventional mortgage solutions require applicants to undergo extensive reviews before getting financing for condominium units. A full condo review follows multiple steps to determine if a project meets specific qualification requirements.
For instance, under full review, experts may check a condo’s HOA budget and ascertain if the projected money the association needs is enough to cover operating expenses and leave enough for fixing various property elements maintained by the HOA.
But HELOC skips condo budgets and doesn’t require lenders to check condo budgets or scrutinize the finances set aside for reserves. This aspect makes a home equity line of credit ideal for any property owner wishing to avoid time-consuming, unnerving processes that might slow down their condo-buying endeavors.
HELOC Draw Period vs. Repayment Period
We can’t proceed without distinguishing between draw periods and repayment periods because you’ll encounter these times at least once while seeking a home equity line of credit.
The draw period you get on a HELOC is the amount of time you are allowed to draw and use as much money as you need from a home equity line of credit, provided your borrowing doesn’t go beyond your maximum available credit line.
You should ascertain and commit your draw period to memory because if it ends unexpectedly, the odds can pile against you fast. Why?
When your draw period ends, your home equity line of credit does the same. That means you can’t get any more financing and enter the repayment stage, where covering whatever you spent becomes mandatory.
HELOC vs. Credit Card
HELOC and credit cards share a few similarities. First, both offer a revolving line of credit, meaning you can use a home equity line of credit or credit card whenever the need arises, pay back whatever you’ve spent, borrow again, lather, rinse, repeat.
But HELOCs and credit cards aren’t inherently similar; these two solutions share some differences. Credit cards are a form of unsecured debt, whereas HELOCs require collateral, i.e., the borrower’s property.
Additionally, credit cards often come with higher interest rates than HELOC loans. By May 2022, credit card interest rates were around 16.65%. On the other hand, a home equity line of credit attracts rates as low as 7.27%.
Why You Should Take Out a HELOC
At this point, you likely already have more than an inkling of what a HELOC is and why it’s a popular option today. If you need more convincing to use a home equity line of credit for projects like home improvement, consider the following:
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HELOCs are unaffected by divorce - HELOCs are rarely affected by divorce and separation. So, if you and your spouse agreed to cover certain payments before the rift, the conditions will remain unchanged even after you separate. So, rest assured your partner won’t dodge responsibility if this adverse event occurs while you have a joint HELOC.
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A HELOC comes with fewer restrictions - Unlike conventional loans that dictate when and how to spend funds, you can use a HELOC to do anything you want. You can use this solution to pay for college tuition, clear off debts, or build a pool in your backyard; the list is endless.
- You can lock in a fixed rate with HELOC - HELOCs are fundamentally variable-rate loan products. That means the payments you’ll pay when you take out a home equity line of credit will fluctuate over time, depending on factors like the prime benchmark rate. Fortunately, you can avoid the unpredictability of this predicament by converting all or a percentage of your home equity line of credit balance to a fixed rate.
Top 3 Places to Get ice cream in Lafayette County, Florida
Do you love your ice cream? Check out the following shops and eateries in Lafayette County:
Grandma Susie’s Cooking Shack
As the name suggests, Grandma Susie’s Cooking Shack is dedicated to preparing dishes just like your grandma did. Check out this place if you love hearty, old-fashioned meals like buttermilk pancakes and their mega burgers, check out this place.
Most importantly, the Shack has some fascinating ice cream options. Their popular treats include sundaes, root beer floats, and malts. Go over its menu for more.
The Hornet Cafe
The Hornet Cafe is a quaint eatery that serves delicious delicacies, including ice creams, in downtown Mayo. It’s locally owned and primarily known for its specialty coffees.
So, you can pop in and order an ice cream whenever your nerves need soothing or a pick me up when you need the extra jolt. And on those days when you feel like doing both, the establishment’s frappucino, prepared with excellent espresso and ice cream, won’t disappoint.
Dollar General
Dollar General is a bargain retail chain that sells most items locals and visitors need, from groceries and household goods to beauty products and snacks.
Although Dollar General isn’t necessarily an exclusive ice cream shop, it can be convenient whenever you need to pick up a quick treat.
Ready to Take Out a HELOC?
You now know all you need to know about HELOC loans. What’s left is applying for a loan. To do that, first, check if this is a fitting solution. Then, locate lenders that support using a home equity line of credit and pick one with reasonable terms. Finally, close on your loan and use it in an ideal project.
If you’d like to celebrate with soothing ice cream at any point, check out the hidden gems we’ve discussed.
(Mar 31, 2023)
