One of the most practical ways to leverage this is by taking a HELOC loan, a loan program that offers property owners access to a more flexible and lower interest credit. This guide looks at HELOC loans, their benefits, and whether they are suitable financing options.
What is a HELOC?
A HELOC (Home Equity Line of Credit) is a credit made available by your home's equity. Typically, this loan program is open to all homeowners who have built enough equity and meet other standard requirements, such as having a good credit score and a low debt-to-income ratio.
Unlike traditional loan programs where you are provided with a lump sum once you qualify, this is a form of revolving credit that works similar to a credit card by giving you access to funds whenever you need them. However, unlike credit cards, a HELOC has a draw and repayment period that limit when you can borrow against your equity.
How Does HELOC work?
A HELOC enables you to borrow against your home's equity while using your home as security. This way, a lender has the authority to seize your home if and when you default on the payments.
Luckily, this loan program enables you to avoid such extremes by offering the flexibility of repeatedly drawing the funds you need against your credit limit - like a credit card – and only paying interest on this amount.
While you have the freedom to pay off the principal plus interest at any time and borrow again, a HELOC has two distinct periods, namely:
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The Draw Period - During this period, which commonly ranges from 5 to 15 years, you will be able to make withdrawals from your HELOC but only up to your credit limit. You must also make monthly interest payments on the borrowed amount.
- The Repayment Period - Once the draw period ends, you will get into the repayment period, where you must pay back the amount you borrowed (principal) plus outstanding interest payments. Often this period ranges from 10 to 20 years.
HELOC Qualification Requirements
While the eligibility criteria for a HELOC loan might vary from lender to lender, the standard qualification requirements you need are:
A Minimum Of 15 To 20% Equity in Your Home
To qualify for a HELOC, you need to have built a certain level of equity, with most lenders requiring you to have at least 15% to 20% equity in your home. Your home's equity is your home's current value minus the amount you owe in the primary mortgage.
However, regardless of how much equity you have in your home, there are limits to how much you can borrow from a HELOC.
Typically, lenders will determine this limit once they calculate your loan-to-value (LTV) ratio by dividing your outstanding mortgage by your home's current value.
Most lenders will also look at your combined loan-to-value ratio (CLTV) by factoring in all secured loans on your property, such as mortgage and home equity, against its current value.
To qualify, you need a CLTV that is no higher than 85% though some lenders can accept your application even with a CLTV as high as 90%.
A Good Credit Score
Your creditworthiness is another critical element that lenders will always consider when you apply for a HELOC. This is done by looking at your credit score to determine if you are a risky borrower or not. Typically, it is best to have a credit score that falls in the mid-to-high 600s or higher to get fast approval.
Besides helping you qualify for a HELOC, a good credit score will also enable you to command better interest rates. As such, the higher your score, the better your chances of landing the best deal from any lender.
A Low Income-To-Debt Ratio
To qualify for a HELOC, you need a low income-to-debt ratio, often no higher than 43 to 50%.
Your income-to-debt ratio, the amount you owe on debt payments against your income, helps lenders determine if you are in the best position to take on more debt.
A Strong Payment History
Since taking a HELOC is akin to taking a second mortgage, lenders want to be confident about your ability to pay back the amount you qualify for. Therefore, besides ensuring you have a good credit score, lenders will give special attention to your payment history.
Strong payment history will give you a distinctive edge, especially if you have a record of paying off large debts without defaulting or attracting penalties.
Proof of Income
Finally, HELOC lenders will require proof of income to prove you can afford the repayments.
Whether you are in employment, running a business, or having other sources of income, you will need to provide some documentation that shows your income information.
How to Obtain a HELOC Loan in Leon County
To obtain a HELOC in Leon County, Florida, you will need to follow these steps:
Shop Around for The Best Lender
If you are ready to apply for a HELOC loan in Leon County, Florida, it is essential first to find the right lender.
Take time to shop around and compare different lenders factoring in terms such as eligibility requirements, fees charged, interest rates, and the repayment period.
Fill Out the Application
After finding the right HELOC lender and ensuring you meet the basic eligibility requirements, go ahead and fill out the application.
Be ready to provide all relevant personal and financial documents, such as your bank statements, W-2s, 1099 forms, and recent federal tax returns, depending on your sources of income. The lender will then use these documents for pre-approval, factoring in your income and credit rating.
Get a Home Appraisal
Once you pass the pre-approval stage, the lender will require an appraisal to determine your home's current value. In most cases, you will need to pay the appraisal fee, often between $300 and $500 for most homes.
Prepare for Closing
After getting a home appraisal, your lender will notify you whether you are eligible for a HELOC. The lender will also clarify crucial details about your application, such as your credit limit and applicable interest rates.
It will then be up to you to decide to sign the official loan documents after going through these final terms and conditions.
Access Your HELOC
Once you sign the official loan documents, you'll access your HELOC after three business days. However, if you change your mind within this period, you can choose to cancel your application.
HELOC for Condos in Florida
As one of the most profitable investment markets in the United States, Florida is famous for its condos. Luckily, as a condo owner, you never have to worry about missing out on taking a HELOC, as these properties are acceptable to lenders.
Not only can you take a HELOC for condos in Florida, but you will also enjoy a smoother application process and other advantages since:
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HELOC lenders are not authorized to look into the homeowner's association budget. Essentially, you do not have to worry about scrutiny on the condo reserve funds.
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Lenders do not need to verify your fidelity bond coverage when reviewing your condo insurance.
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A HELOC only requires a limited review, as lenders do not care if you own more condo units than the allowed threshold or about the number of investors, which is the case in a typical full condo review.
- You can qualify for as high as 75% maximum financing on your first mortgage, and 90% combined financing on your primary and secondary mortgage.
In the end, choosing to take a HELOC for condos in Florida is a straightforward process that will save you needless frustration by avoiding the numerous eligibility criteria other financing alternatives/home equity loans are known for.
Why HELOC is Great for Divorces
It is never easy going through a divorce as besides saying goodbye to your partner, you also have to split finances and shared equity. However, you can avoid complications likely to arise from the latter by opting for a HELOC, which helps leave your primary mortgage intact while tapping into the available equity, as a HELOC is a second mortgage.
This way, you do not have to sell your home and incur high mortgage rates when you go into the market again or refinance it and lose the excellent interest rate it currently holds. Another advantage of a HELOC is that you can lock in a rate after closing, so you never have to worry about future fluctuations.
The best part about considering a HELOC during a divorce is that it can easily finance 100% of the divorce settlement payout, depending on your combined loan-to-value ratio (CLTV).
Using HELOC for Home Improvement or Renovation
Home improvement or renovation projects are never cheap, and as a homeowner, the last thing you need is a loan that will overburden you in the future. Opting to use a HELOC to make these upgrades will save you from these worries, as, unlike renovation loans, a HELOC is not based on your home's future value. Instead, it is a suitable channel for increasing your home's value.
HELOC loans in Leon County also have low to no closing costs and are more flexible as you can repeatedly draw the funds you need and only pay back the amount you use. You will also have a more extended repayment period and the freedom to pay off the principal entirely or partly during your draw period.
Advantages of a Home Equity Line of Credit (HELOC)
More homeowners in Leon County, Florida, are opting for a HELOC, given the unique and numerous advantages this loan program offers. Here, we have rounded the primary benefits of taking a home equity line of credit.
Enjoy Lower Interest Rates
Comparatively, a HELOC attracts lower interest rates than most personal loans and credit cards, making it the best choice if you want an affordable financing option. Even though HELOCs have variable rates that fluctuate with time, and the exact rate a lender offers you depends on several factors, such as your credit score, it is still a cheaper option.
The lower interest rates that HELOCs are known for are primarily because this is a secured loan whereby your house is collateral. As such, even with its fluctuating rates, you will still enjoy favorable rates over the years as it is a less risky loan program for lenders.
You Only Pay Back What You Spend
With HELOC loans, you do not receive a lump sum loan amount in your account that you have to pay back regardless of whether you use it. Instead, you get to have a credit card-like scenario where you have the flexibility of withdrawing funds, factoring in your credit limit whenever you need, and only paying back interest on the amount you spend.
This makes HELOCs a great way to quickly access funding, especially if you are considering a project whose total cost is unclear. It is also an effective way of ensuring you have a source of money you can continuously tap into without being stuck paying interest for a considerable sum you might never get to use.
Access to Large Loan Amount
Since HELOCs are secured loan products, they offer access to a more considerable loan amount compared to a credit card or personal loan.
This makes HELOCs a great financing option, especially if you want to consolidate your debts, finance a divorce settlement payout, or undertake a project that requires significant funding, such as a home renovation.
The exact amount you qualify for will depend on several critical factors, such as the equity you have, your credit score, loan-to-value ratio, and income.
Freedom to Use the Money for Anything
When you take a HELOC, there are no restrictions on how you can use the funds. In this, it is similar to a credit card or personal loan, as you can choose to use the money on any purchase, project, or investment you deem fit.
However, it is advisable never to take a HELOC to cover your basic needs as this funding is best channeled to a project with long-term value.
You Can Lock in Your Rate
Many HELOC lenders today offer the option to lock in your rate on the outstanding balance. With this option, you can protect yourself from rising interest rates in the coming years once you have piled up a balance.
However, it is crucial to remember that this option is not always made available and, if provided, might attract a certain fee or higher initial interest rate.
HELOC vs. Refinancing - What is the Right Choice for You?
Like HELOC, refinancing is another popular way to tap into your home's equity. The primary difference between these two forms of home equity financing is that with a cash-out refinance; you'll be paying off your first mortgage with a higher loan amount and getting the difference as a lump sum. On the contrary, a HELOC is like a second mortgage that opens a line of credit you can access whenever you want.
On a side-by-side comparison, a HELOC is the right choice if you want flexibility in accessing funds, which is vital to finance a project at hand. A HELOC attracts low to no closing costs; unlike refinancing, you should be ready to part with between 3% and 6% of the total refinanced option.
You could also receive a tax break if you use a HELOC to upgrade your home; however, you should first check with your tax accountant on this.
5 Best Ice Cream Shops in Leon County, Florida
Few things beat the pleasure of indulging in a yummy ice cream treat in the sunshine state of Florida. Luckily for you, Leon County has some of the most fantastic ice cream shops in the state, and with the array of exciting flavors they serve, you will always be delighted.
Here are the five best ice cream shops in Leon County in Florida to explore:
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Lofty Pursuits - Lofty Pursuits is, without question, one of the most popular ice cream shops in Tallahassee for all the right reasons. Famous for its old-fashioned style, this ice cream restaurant serves over 200 flavors and will even allow you to see how they make their handmade hard candy. Try Lofty Pursuits with your family or friends, and you will visit them repeatedly.
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Bruster's Real Ice Cream - Bruster's Real Ice Cream is an authentic ice parlor in Woodville that brings fun into the game. You will appreciate the diversity of flavors this ice cream shop serves, their reasonable prices, and their excellent services. Drop by this ice cream shop whenever you feel a little sinful and get lost in their exciting offerings.
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Barb's Southern Style Gourmet Brittles - Barb's Southern Style Gourmet Brittles takes the prize for being the most exciting dessert spot in Tallahassee. Its location in the boutique by Lake Ella is an extra plus as it gives you the thrills of savoring your favorite treat as you enjoy the calming views. Most importantly, this ice cream shop will always surprise you with its distinct flavors as it specializes in homemade ice cream.
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Diva pops - As the first hand-rolled ice cream shop in Tallahassee, Diva Pops remains true to its primary mission - to serve you the best-handcrafted gourmet ice cream. A visit to this shop will always have you enjoying each scoop of freshly made ice cream flavors that contain all-natural ingredients. Try it out, and you will quickly realize why most locals consider it a must-visit for sweet treats.
- Big Easy Snowballs - Big Easy Snowballs has covered the miles to offer you an exciting variety of classic treats. This ice cream shop has over 75 distinct flavors, and you can never have enough of their offerings until you try out their stuffed snowballs. You can try out their sugar-free or sour flavors if you want to go slow on too-sweet treats.
HELOC Loans - The Bottom Line
Leon County, Florida is one of the best places to call home, and as a property owner in this sunny and beautiful state looking for an affordable financing solution, you should consider taking a HELOC.
This way, you can leverage your home's equity to open a line of credit you can access whenever you have a pressing financial need. But first, check if you meet the loan qualification requirements and talk with a professional HELOC lender.
