(Mar 26, 2023)
Usually, this line of credit resembles a credit card in many ways. Borrow as much as possible and make multiple withdrawals from this credit line. Also, there are no restrictions on how you spend the money. However, you'll have lower interest rates on your account balances.
Besides, you'll have a draw period where you withdraw from the HELOC and a repayment period where you pay back the borrowed amount. Do you want to learn more about this financing option? This guide will walk you through the nitty-gritty of this loan option.
What is a HELOC loan?
The home equity line of credit (HELOC) represents a credit line that your home secures. This loan provides a revolving credit line ideal for significant expenses. Besides, the loan amount can help you consolidate your higher-interest-rate debts.
Usually, this loan lets you borrow against your home equity. Essentially, your home serves as collateral for the credit loan. Lenders will usually replenish your available credit when you repay your outstanding balance. However, you'll only have access to these funds during the draw period.
The loan terms usually feature 30 years, including a 10-year draw period and a 20-year repayment period. The initial ten years represent the draw period, where you have unlimited access to the funds. Essentially, you can borrow as much or as little as you need. However, you can't exceed your loan limit while making withdrawals.
The repayment period commences immediately after the draw period. This period usually lasts for 20 years. You'll need to pay your principal amount while paying the accrued interest.
More on HELOC Phases
Engage with your lender on the possibilities of an extension after the draw period ends. Often, you'll only need to make interest-only payments on your loan during the draw period. Some borrowers opt to pay extra to cover part of their principal amount.
You won't have access to the loan funds during the second phase. Otherwise, you'll need to prepare to make regular principal and interest payments. Also, explore different repayment options to ease through the repayment period.
Qualification Requirements
HELOC loans have specific qualification requirements you must meet to earn loan qualification.
Home Equity
Home equity is the remaining amount after dividing your mortgage debt from the home's value. Lenders will only approve loans for borrowers with sufficient home equity. You can only have the required equity if you owe less than the home's value. Home equity of at least 15% to 20% is sufficient to earn qualification for this loan option.
Remember that there are limits to how much you borrow regardless of your home equity. Usually, lenders will let you borrow up to 85% value minus your mortgage balance. Your loan limit often depends on your loan-to-value ratio and the combined loan-to-value (CLTV) ratio.
Credit Score and Repayment History
Your credit score and repayment history reveal if you'll pay your loan obligations consistently. Most lenders require you to have a credit score in the mid-to-high 600s. Having a higher credit score is also better.
Good credit also lets you qualify for a better interest rate. Lenders won't have trouble giving you a lower interest rate if your credit score is high.
Lenders will also assess your repayment history to understand your payment patterns. This history will also reveal your risk threshold. Most lenders prefer working with people who pay their debt obligations consistently.
Remember that your payment history also has implications on your overall credit score. Given that this line of credit serves as a second mortgage, be prepared to demonstrate to your lender that you won't have trouble handling your new debt obligations.
Employment Status
You should also demonstrate that you can afford to repay the loan. Lenders require proof that your income is enough to cover your new financial obligations. Ensure that you gather enough documentation that indicates your employment and income information.
Your pay stubs and W-2s are sufficient to indicate your employee wages. On the other hand, you can provide your recent federal tax returns if you are self-employed. Your benefit verification letter will also suffice as an indication of your social security benefits.
Do you have any other benefits? Your lender might ask for retirement award letters, 1099 forms, and benefit statements.
Low Debt-to-income Ratio
Usually, lenders rely on your debt-to-income ratio to determine if you can reasonably take on more debt. This ratio usually compares your monthly debt payments with your monthly income.
A low DTI ratio often indicates that you don't have a significant amount of existing debt. Most lenders insist that your DTI ratio be between 43 and 50% before approving your loan request. Some lenders might require even lower ratios.
Ideal for Divorces
Are you experiencing difficulty raising the funds required to clear the divorce settlement payout? Getting this home equity line of credit provides a viable solution. This loan option is a second mortgage, meaning you'll keep your primary mortgage intact.
Unlike a refinance loan, the HELOC loan ensures that your primary mortgage interest rate doesn't change. Besides, lenders will also allow you to lock in a rate after closing. Also, the cash-out refinance could easily double your interest rate.
Leverage this loan option to pay out your spouse's home equity. You won't get into the hassle of selling your home and losing part of the home's value to agent commissions and other fees. If you sell the house, you'll also need to buy again, resulting in higher mortgage rates and accompanying closing fees.
Work with your lender to complete a home appraisal to determine your home's value. You'll also know how much cash you can get from the appraisal.
75-15 HELOC for condos in Florida
If you're looking for a loan option where lenders don't analyze your association budget, the HELOC loan for condos is suitable. With this loan, you'll receive up to seventy-five maximum financing on your first mortgage. Besides, you could also get 90 percent financing on both your first and second mortgages.
Some lenders might need to review your condo insurance. Such lenders hardly bother about your fidelity bond coverage. Besides, you won't need to explain the number of owner-occupied condos.
This loan option can prove decisive if you have a condo in Liberty County. Enjoy a seamless loan application and approval process whenever you sign up.
Works Well with Home Improvements
Are you considering home improvement projects but are cash-strapped? HELOCs provide an inexpensive solution. You could complete these projects with a mortgage with low to no closing costs. Use the funds to improve your home's curb appeal or increase your square footage.
Besides, this line of credit offers you unmatched borrowing and repayment flexibility. You'll get enough cash to improve and increase your home's value. Again, the underwriting guidelines come with lots of flexibility.
Benefits of HELOCs
Here are the main benefits of taking out a HELOC loan:
Lower Costs
Local credit unions, national banks, and banks tend to offer advantageous loan options. If applicable, you might pay smaller closing costs than those on one-time loan options. Besides, you'll find lenders with zero upfront closing costs if you shop around extensively.
If you can't find a no-closing-cost lender, prepare to pay some upfront and ongoing fees. Typical closing costs include appraisals, title fees, taxes, and escrow/signing. Given that the appraisal is the most significant expense, find a lender who only requires an automated valuation model. This computerized system will estimate your property value for free.
Overall, the home equity line of credit provides low-cost access to a revolving line.
Borrow large amounts of cash
Typically, HELOCs provide more significant loan amounts than personal loans and other mortgages. As your home acts as collateral, lenders are confident that you are less likely to default on this loan. However, the exact loan amount will depend on your home equity.
Your loan-to-value ratio also determines your loan amount. Overall, your lender will help you know how much you can access.
Introductory Offers
Some lenders provide attractive introductory offers to attract clients. These offers include waived fees or lower interest rates.
Leveraging these offers helps you to save some money upfront. However, assessing factors other than the introductory offers is always good practice before settling on a lender.
No Restrictions on Expenditure
Use the funds from the HELOC loan on whatever you please. Most borrowers use these funds to consolidate debt, start businesses, or fund home improvement projects. Alternatively, you could use the loan to cover pending medical bills/expenses.
Expect tax benefits whenever you use the loan to improve your home. Lenders will deduct interest on your loan if you spend it on improving the home that secures it.
While there are no spending restrictions, avoid using this money to fund luxurious expenses. HELOC funds won't be suitable for your vacation plans.
Pay for what you spend
Like a credit card, you won't pay for any amount you don't spend. With other home equity financing options, you might have to pay back the loan amount regardless of your spending.
HELOCs offer you much-needed flexibility, primarily when you work on projects where you are unsure about the total cost from the start. You'll have much funding to tap into as the need arises. On the other hand, you won't need to pay interest on any money you don't spend.
Option to Lock in your Interest Rates
In most instances, HELOCs feature variable interest rate terms. However, some lenders let you lock in your rate. This option will provide more stability, ensuring you don't worry about paying higher rates as you accumulate a higher loan balance.
Sometimes, this option will have specific fees and a higher initial interest rate. Fortunately, the opportunity to lock in your rate offers stability in a rising rate environment.
Lower Interest Rates
Typically, lenders are willing to offer you significantly lower interest rates, given that your home secures the home equity loan. Remember that the exact rate usually depends on your credit score. You'll get significantly lower interest rates than a credit card or personal loan.
Besides, given that HELOCs are variable-rate loan options, expect the interest rate to fluctuate over time. While the rates might rise, they'll remain lower than other mortgage rates.
The Loan Application Process
Are you ready to leverage this loan's numerous advantages? Here are the steps of the application you need to follow.
Shop around for lenders
Shopping around and finding a lender who'll deliver precisely what you need is always helpful. Different lenders usually offer different loan terms and accompanying fees. Compare traditional banks, mortgage companies, and credit unions. If you're entirely new to the mortgage world, consider seeking the services of a mortgage broker.
Consider getting at least three quotes before making your decision. If you have multiple bank accounts, look for better rates or promotions for existing clients. A mortgage professional can provide insights into which offer will suit you.
Fill out the application
If you work with traditional banks and credit unions, prepare to complete your application from their local branch. Other lenders offer an online application process that you can complete from the comfort of your home.
Inquire from your lender about the documents they require. Consider putting together your pay stubs and W-2s. You might also need to prepare bank statements to ease the loan application process.
Request a home appraisal
You need to know your home's value to know how much you will receive. A home appraisal will suffice in this case. More often than not, your lender will schedule the home appraisal. Set aside between $300 and $400 for this process.
Loan Closing
Your lender will notify you about the loan's status, then share the loan terms and conditions. Expect information about the credit line limit, interest rates, and closing costs.
Carefully scrutinize all the loan documents before you proceed with the mortgage. This approach ensures that you don't endure heartaches later. If you act swiftly, you could walk away from the loan. Ensure you notify your lender in writing within three days if you notice something that doesn't sit well with you.
Access the Funds
If you're confident about the loan terms and conditions, you can proceed with the loan. Your lender will grant you access to the funds, meaning you can start making withdrawals as you please.
Top Places to Get Ice Cream Within Liberty County, Florida
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Aunt Ebby's Ice Cream - Aunt Ebby's offers the biggest ice cream scoops on the island. There is a large variety of hand-dipped ice cream to choose from. You could also ask for dairy-free options and no-sugar-added flavors. Your kids will love the phenomenal ice cream with plenty of sprinkles and cherries.
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Shoobie's Frozen Treats - Are you in the mood for some good, smooth, creamy soft serve? Make your way to Shoobie's Frozen Treats. They serve most of the ice cream in waffle cones. If you order sundaes, they will come loaded with toppings. You'll enjoy flavorful ice cream options whenever you visit this ice cream shop.
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Kountry Candy Store - If you love homemade ice cream and candy, you'll be delighted with the multiple options available at the Kountry Candy Store. You'll also find delicious hand-dipped ice cream. This good old-fashioned candy and ice cream shop always delivers unforgettable experiences. The friendly and courteous staff members guarantee a memorable experience.
- Milk & Honey Frozen Yogurt - Enjoy a great selection of ice cream flavors at this shop. You'll find delicious flavors that have great toppings. Soothe your cravings before you head out to the scorching sun.
Leverage your Home Equity with a HELOC loan
Are you looking to make the most of your home equity? Consider applying for the home equity line of credit to get enough funds for renovations and large purchases. Second mortgages are compelling options whenever access to extra cash becomes necessary.
(Mar 26, 2023)
