Before HELOC loans were an option, borrowers used to turn to cash-out refinancing when they needed to convert equity into money. However, cash-out refinancing became a costlier option due to the higher mortgage rates in the market.
A home equity line of credit (HELOC) loan is secured by your property. Like a credit card, it gives you an ongoing line of credit that you can use for any function, be it consolidating debt or improving your home.
Here's everything you should know if you consider a HELOC loan in Seminole County, Florida.
What a HELOC is
With a HELOC loan, you can tap into your line of credit until you reach a credit limit within a specified draw period. You also get full access to your credit line with the option of paying interest only on the amount spent. Unlike a personal or home equity loan, you won't receive the entire loan amount as a lump sum.
HELOC loans are designed with a 30-year term in mind, which includes a 10-year period you can use to draw money from your credit line and a 20-year period to settle the amount spent. It's also possible to get a different length of the draw and repayment period when signed up for the loan.
For an interest-only HELOC, loan payments only help clear the interest rather than the principal within the set drawing period. When you reach the repayment period, you can only start paying the total interest and principal. But, the best way to avoid large monthly loan payments in the repayment timeline is to make principal payments in the draw timeline.
How Home Equity Line of Credit (HELOC) Loans Work
Since you will borrow against the available home equity, your property will act as collateral for the credit line. The only time the lender can replenish the available credit amount is when you clear your remaining balance. In this case, you can borrow against your home equity again as much or as little as you need.
The 75-15 HELOC for Condos in Florida
In Florida, the 75-15 HELOC loan is available to borrowers looking to finance a condo purchase. The loan offers a maximum of 75 percent financing on your first mortgage. It also offers a 90 percent combined financing on your first and second mortgage.
The 75 percent and 90 percent financing options only work if you want to use the mortgage to finance the purchase of a primary residence condo. With that said, here are some of the guidelines for the 75-15 HELOC loan for condos in Florida:
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Lenders have no authorization to analyze the association budget, and there's no scrutiny on the number of funds dedicated to the reserves.
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The fidelity bond coverage won't need any verification when reviewing condo insurance.
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The number of owner-occupied, as well as investors, isn't a priority to the lender.
- Limited condo questionnaire rather than full.
HELOC Requirements
Though the eligibility criteria for a home equity line of credit varies with the lender, the essential requirement is that you need to have a certain amount of home equity. Home equity, in this context, is the amount remaining after you divide your outstanding mortgage balance from your current home value. The required home equity is 15 to 20 percent to qualify for this loan.
It's also important to consider the loan limit of a HELOC, which dictates the maximum amount you can borrow. Lenders base this limit on your LTV (loan-to-value) ratio, the amount you get when you divide your loan balance with your current home value.
The combined loan-to-value (CLTV) ratio also comes into play when lenders approve you for a HELOC. Your CLTV is a sum of all secured loans on your home (including your first home loan as well as other home equity loans) divided by your home's value.
For most lenders, you need a maximum CLTV ratio of 85 percent, while for others, a maximum 90 percent CLTV ratio will be accepted.
Besides having equity in your home and meeting the lender's requirement, the eligibility criteria for a HELOC also include the following:
Show Proof of Income
Since lenders want to know whether you can afford to repay a HELOC loan, they will ask for income proof. The supporting documentation you provide should adequately capture your employment history and income.
It should include W-2s and pay stubs, federal tax returns (if you are self-employed), a benefits verification letter for Social Security benefits, and other benefits statements.
Have Good Credit
Your credit history and score will help HELOC lenders determine whether you are creditworthy. While a credit score within the 600s range is needed, a score of 700 or above will improve your chances of securing a better interest rate.
Have a Low Debt Amount
A maximum debt-to-income ratio of 43 to 50 percent is all you need to qualify for a home equity line of credit. The DTI ratio is the amount owed on monthly debts, like credit cards or mortgages, weighed against your income.
Show a Strong Payment History
Reviewing your payment history will help the lender know your risk of borrowing a HELOC loan. Strong payment history can increase your chances of not only getting a HELOC but qualifying for a lower rate. This is because lenders must ensure you will repay the loan reliably.
Are HELOC Loans Great for Divorces?
A HELOC can help you with a divorce settlement payout without having to refinance and potentially lose a reasonable interest rate on your first mortgage. You can also get a chance to lock in a rate of your choice during closing. And as all these activities happen, you can tap into the much-needed equity.
A divorce can lead to unexpected expenses when it's settled in court. Depending on the nature of your marriage, your spouse may be entitled to 50 percent of the existing equity from the home you once shared. While this percentage may seem equitable, raising the equity in cash can be difficult.
Your options for raising the 5 percent equity may include a cash-out refinance, which may double the interest rate, or selling the property, resulting in a loss of the home's value. The best option is to take a HELOC which allows you to tap into close to 100 percent of your property's existing value.
Are HELOC Loans Great for Home Improvements
Since HELOC loans are based on a home's current value rather than its future value, they are ideal for home improvements. They also boast low closing costs, more borrowing flexibility, and flexible underwriting guidelines compared to traditional renovation loans.
With the home equity line of credit loan, you will borrow money against your home equity at a fixed interest rate. Your home's current market value, income, credit score, and mortgage balance will determine the loan limit.
Once you qualify for the HELOC loan, you can lock in an interest rate for the entire loan term. The interest rates are relatively lower compared to other financing options and, at times, tax-deductible, while the fixed monthly payments are manageable.
How a HELOC Loan is Better than Refinancing
With a home equity line of credit loan (HELOC), you get a loan in exchange for equity built on your home. On the other hand, a cash-out refinance you to completely repay your old mortgage and get a new one with a favorable interest rate.
A HELOC loan allows you to access money invested in a home readily. You won't have to repay your existing mortgage to get this type of loan. It's a great option if you want cash fast.
A cash-out refinance usually costly when it comes to the percentage points and fees compared to a HELOC loan. Lenders also have strict credit and underwriting requirements for you to qualify for this type of funding.
Advantages of HELOC Loans
You may consider a HELOC (home equity line of credit) loan for its low-interest rates and appealing eligibility requirements. The loan also allows you to lock in or fix a mortgage rate, use the cash on anything and borrow more money, as discussed below.
Relatively Low-Interest Rates
Though the actual interest rate for a HELOC depends on credit score, the loan boasts better rates than personal loans.
To be precise, the average mortgage rate for a HELOC loan totaling $30,000 is close to 6.5 percent. The rate is lower compared to 8.73 percent charged on personal loans and 15.13 percent charged on credit cards.
Option to Lock in A Good Rate
As you shop around for a HELOC loan, you may encounter lenders that allow borrowers to lock in or fix the interest rate on loan. Locking in or fixing a rate allows you to pay a fixed interest on your loan balance.
Introductory Offers
It's common to find some HELOC loan products with introductory offers like low-interest rates and waived fees for a specified period to appeal to borrowers.
These offers can help you cut the loan costs upfront. However, you should only settle on one HELOC loan product after comparing the rates from different lenders.
Money Can be Used on Anything
HELOC loans borrow certain aspects of credit cards. In particular, they allow you to use the borrowed funds on whichever expenditure you prefer. You may use the money to pay for medical expenses, start a business, fund home improvements, or consolidate debts.
There's also a tax benefit that comes with HELOC funds used on home improvements. The interest may also be deductible if you used the loan to purchase, build or renovate the home that's acting as collateral.
Pay for What You Spend
HELOC lenders only expect you to pay for what you spent on your loan, inclusive of interest. There will not be any need to get the loan in a lump sum and repay the total amount irrespective of what you spend.
With such flexibility, HELOC loans are suitable for projects with variable costs. In this case, you'll have cash at your disposal when you need it.
Larger Loan Limit
Home equity line of credit loans boasts more significant loan limits than personal loans and credit cards. And with a higher amount of home equity, you may qualify for a larger amount—other factors, such as the loan-to-value ratio, also factor in the loan limit.
Ultra-Low Closing Costs
Unlike a refinance, a HELOC loan has lower costs, including closing costs. You may even find a lender that waives the closing fees upfront. Either way, a HELOC loan reduces most borrowers' financial burden at closing.
How to Apply for a HELOC
The steps for applying for a HELOC are pretty straightforward. You have to do the following before you access the funds:
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Compare rates, fees, and eligibility requirements from different lenders to know your options.
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Gather the required documentation (pay stubs or bank statements) and fill out an application with your preferred lender.
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Get the home appraised for its current value (a service you will pay for out-of-pocket) after the lender approves your income and credit.
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Prepare for the closing stage after appraisal and getting the lender's official approval for the HELOC.
- Access the funds in three business days once the loan is closed, with the ability to make withdrawals at your convenience.
On average, it may take two to four weeks from the start of the application to the closing stage. Depending on your situation and the lender's loan processing timeline, the process may take longer.
The Best Places to Buy Ice Cream in Seminole County, Florida
Located in the central part of the Sunshine State, Seminole County boasts plenty of fun recreational activities and spots for adventure.
Besides having quaint neighborhoods and towns and the best schools in the state, the county also features excellent ice cream shops. Here are our top five recommendations:
Andy's Frozen Custard (Sanford, FL)
With offerings ranging from frozen custard sundaes to concretes and a wide range of toppings, Andy's Frozen Custard is a great ice cream shop. Their frozen custard is thick, flavorful, and refreshing. The spot is also friendly to families and kids.
Frozen Nitrogen Ice Cream (Lake Mary, FL)
Frozen Nitrogen Ice Cream is a fun shop serving fresh ice in front of customers. You can choose from many flavors with bits of science you can learn about.
The shop's mix-ins include chocolate, candy, peanut butter, fruits, cookies, syrup, and nuts, among many others. They are available in both vegan and non-vegan variations.
Sal's Italian Ice (Sanford, FL)
With a patio serving hand-dipped and soft ice cream plus Italian Ice, Sal's Italian Ice is among the best ice cream spots in Sanford, FL. The shop has a variety of flavors and toppings that you can choose from. It's also a great dessert spot for friends and families.
Kelly's Homemade Ice Cream (Oviedo, FL)
Kelly's is perhaps known in Oviedo, FL, for its seasonal flavors that keep ice cream lovers looking for more flavors. For instance, you can enjoy peppermint ice cream as a special in July. You can also get a dog pop for your canine from the shop.
The shop's best flavors include unicorn tracks and cookie monsters. You can also find up to 3 non-dairy flavors if you don't take dairy products.
Nan & Pop's Ice Cream Shop (Longwood, FL)
Nan & Pop's Ice Cream Shop closes this list with their fantastic cookie monster bubble waffle. The shop has the friendliest service you'll ever find at an ice cream shop in Longwood, FL.
You can even sample their Zaac's Say Cheesecake if you are in the mood for some experimentation. It's a fresh warm waffle featuring two scoops of strawberry ice cream topped with sweet whip cream.
Summing up
Don't hesitate to sign up for a home equity line of credit (HELOC) if you want to use your home equity for any financial need.
Unlike other financing options that require you to meet strict eligibility requirements and offer the loan in a lump sum, a HELOC takes the stress off getting a loan.
