(Mar 26, 2023)
A HELOC offers you flexible credit with lower interest, and you only have to pay the monthly interest in the draw period. This guide looks at a HELOC loan, how it works, and its benefits. You will also learn about the best ice cream shops in Sumter County.
What is a HELOC?
A home equity line of credit is a form of revolving credit that works like a credit card where you repay the loan in whole or in part each month. The amount you can borrow depends on your home's equity, DTI, credit score, and other factors that your lender uses to evaluate your eligibility for a HELOC.
If you already have a mortgage, you can apply for a HELOC as a second one. And your credit limit is based on your home's appraised value, which you can take out as much or little as you want, provided it doesn't exceed the set limit. Your home also acts as collateral for the HELOC, and it's advisable to use the funds for major projects.
How Does HELOC Work?
A HELOC works similarly to a home equity loan, except you don't get the lump sum at once. You can use it just like a credit card by withdrawing any amount until you reach your credit limit. A HELOC loan usually has two terms:
The draw period
In the drawing phase, you withdraw from your HELOC only up to the maximum limit. This withdrawal period lasts five to ten years, and you're only required to pay for the interest.
You may also opt to pay off the borrowed amount, though the interest and principal are paid off during the repayment period.
The repayment period
The repayment phase lasts 10 to 20 years, and you can't borrow during this period even if you have an available credit line. You must repay the borrowed amount and any interest owed. It is possible to reduce your monthly payments during repayment by paying your principal during the draw period
As opposed to home equity loans, HELOC Interest rates are variable and are subject to market fluctuations. Though variable interest can favor you when the market rates are low, you could be disadvantaged when the interest rate rises over the loan term. Many lenders offer lower introductory rates at the beginning of the loan term.
HELOC Eligibility Requirements in Sumter County, Florida
A HELOC is secured by your home, which protects your lender against credit risks. Apart from housing prices, the lender uses other factors to consider if you have a strong credit profile and qualify for a HELOC.
Home Equity
The HELOC loan requires you to have a sufficient amount of equity in your home.
Your home's equity determines how much you can borrow, meaning you must have less debt than the value of your home. It is usually possible to borrow up to 85% of the home's value minus your debt.
A High Credit Score
Lenders use your credit score to estimate your ability to repay them when deciding whether to loan you money. When you have a good credit score, you will be able to get a HELOC with attractive rates that will help you reduce your borrowing costs.
Most HELOC lenders require a credit score of at least 600, and having a credit score of 700 or more offers the best chance of qualifying for the loan.
Favorable Debt-to-Income
Besides your credit score, most lenders set a minimum debt-to-income (DTI) limit for HELOCs. Your loan is unlikely to be approved if your debt-to-income ratio exceeds 43%.
But some lenders may approve a DTI of up to 50% if you have a high credit score. A DTI of less than 41% shows lenders that your income is sufficient to pay off your debts and cover your living expenses.
Have Sufficient Income
Though some lenders do not have specific income requirements on their home equity loans, most will assess your income to determine your ability to repay your loan.
Your income level also determines the amount you can borrow, and consistent income confirms to lenders that you can repay your HELOC on time.
How to Apply for a HELOC Loan in Sumter County, Florida
HELOCs are a great way to borrow cash, especially for significant expenses, debt consolidation, or emergencies. You can apply for a HELOC in person, over the phone, or online. The application process is simple, and it involves the following steps:
Find a lender
First, ensure you meet the minimum HELOC requirements by checking your credit score, evaluating your income, and looking at your current mortgage.
Research and ask multiple HELOC lenders for quotes if you want the best rate. When comparing rates from different lenders, you should consider closing costs or annual fees.
Begin the Application Process
After finding a lender, you can proceed to fill out your HELOC application.
Depending on the amount you are looking to borrow and your loan-to-value ratio, expect to provide basic financial information and consent to credit checks.
Get a Home Appraisal
Once your HELOC lender verifies your income and approves your credit, you will need to have your home appraised to determine the value of your home.
The lender may schedule this appointment on your behalf, and you need to pay the appraisal fee, which ranges between $300 to $500.
Get ready for closing
Upon reviewing the offer and agreeing, you can schedule a closing. Following the appraisal, your lender will inform you of your approval status and the amount you can borrow. They will also provide the details related to the HELOC, which will include the interest rate and the repayment schedule.
You will sign all loan documents during the closing to make the transaction official. The loan amount will include the closing costs, but the fees will depend on the lender. It may take 30 to 60 days to close the loan and transfer the funds.
Get access to your funds
You can cancel the agreement within three days after the closing is complete. After that, you can withdraw funds from your HELOC account.
HELOC for Condos in Florida
Condos are one of the most profitable investments in Florida. Significant home equity ensures you don't miss out on this investment opportunity.
Using HELOC to finance your condo has several advantages - you may take out a HELOC as a second mortgage and borrow money with your home as collateral.
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Your lender isn't allowed to examine the HOA budget, so they won't review funds directed toward reserves.
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HELOCs require a limited review rather than a full condo review, and the underwriter is not interested in the number of owner-occupied units. A typical full condo review considers owner occupation, and the deal may not go through if the number exceeds the threshold.
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Your first mortgage offers you a maximum of 75% in the financing, and you get up to 90% financing when you combine it with HELOC as a second mortgage.
- It is unnecessary to validate your fidelity bond coverage when assessing condo insurance.
A HELOC lets you finance your condo without the hassle of meeting stringent qualification conditions. Moreover, HELOCs are a great way to finance a large part of your new home's costs and may offer better interest rates than other financing options. Personal loans and different types of financing tend to have higher interest rates.
Why HELOC is Great for Divorces
Getting divorced is never easy, especially when splitting finances and sharing equity. HELOCs come in handy when you want to keep your home and cannot afford to pay out your spouse.
The best part of taking out a HELOC as a second mortgage is that it does not affect your first mortgage since it is a separate loan with different terms.
Unlike refinancing, HELOC prevents you from losing a favorable interest rate and allows you to lock in interest rates after closing. So you do not have to be concerned about sudden changes in interest rates.
Using HELOC for Home Improvement or Renovation
It's expensive to renovate your house, and HELOC offers you an affordable opportunity to make improvements and increase your home's value.
Since it is a loan, your renovations should be strategic by focusing on projects that can recover more than half your costs. These projects include adding siding, landscaping, and remodeling the kitchen and bathroom.
One of the benefits of using HELOC for home renovations is you can deduct the interest. But there's a catch. The interest on your home loan debt is only deductible up to $750,000 of your home debt, including mortgages and HELOCs.
The Pros of Home Equity Line of Equity (HELOC)
A Home Equity Line of Credit works similarly to a second mortgage, giving you access to funds based on the value of your home, similar to other home equity loans.
But there are several reasons why you might choose a HELOC, which include:
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Low-Interest Rates - A HELOC is a smart option if you need funds for home improvements or to consolidate debt with high-interest rates. With your home as collateral for the loan, you usually get a lower interest rate than you would with an unsecured loan such as a credit card.
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Borrow what you need - A HELOC offers the most flexibility when it comes to borrowing money. It allows you to borrow small amounts when needed, avoiding unnecessary debt. With HELOC, you'll never have to pay any interest until you use the funds, apart from a small annual fee.
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Interest may be tax-deductible - Using home HELOCs for home improvements still allows you to deduct the interest. But a deduction is only allowed up to a certain amount determined by the total interest paid on both mortgages. In particular, the tax deduction for home equity products is limited to those used to purchase, renovate or build with the loan's proceeds.
- No restriction on the use of funds - Although your home guarantees the loan, HELOCs aren't limited to home improvements. You can use the funds for many purposes, including buying rental properties, paying bills, and repaying high-interest debts. But it's advisable to use HELOC to finance projects with long-term value.
HELOC vs. Refinancing - What is the Right Choice for You?
You can take advantage of your home equity with both HELOCs and refinancing. The main difference is that HELOCs act as a second mortgage, while a refinance involves taking out a larger mortgage than the outstanding balance of your existing mortgage. You can cash out the remaining balance after you pay off the existing loan.
But HELOC is the right choice if you want easy access to your funds when financing a project. Unlike finance, HELOC offers you a tax deduction with minimal closing costs.
When doing a cash-out refinance, you should consider the high closing costs, which can account for 2% to 5% of the loan amount, not just the cash-out portion. As a result of the new loan, your current mortgage balance will increase.
Best Ice Cream Shops in Sumter County, Florida
Ice cream is always a welcome treat in Sumter County on a hot summer day. There are plenty of ice cream shops in the county, and you will always find what you like.
These ice cream spots in Sumter County will satisfy your craving if you're looking for classic flavors such as chocolate, vanilla, or exotic flavors.
Here are five ice cream shops in Sumter County that you need to check out:
Mystic Ice Cream
Mystic serves flavored homemade ice cream that appeals to all ages. Apart from the classic options, their menu has a few more unusual alcoholic ice cream flavors, including Kahlúa Fudge, Cherry Amaretto, Mystic Slide, and Butterscotch Crunch.
Mystic is a hot spot for karaoke, trivia, and game shows if you're also looking for a place to hang out with friends.
Haagen-Dazs Ice Cream Shop
Find the purest frozen yogurt, sorbet, and the best ice cream at the Haagen-Dazs.
Their ice cream is created with a unique blend of cream and fruits to come up with various flavors, including vegan and gluten-free options. Try out their Dulce de leche ice cream, and you will love their mint chocolate flavors.
Ritter's Frozen Custard
With just one bite, you'll agree that Ritter's frozen custard offers the creamiest, most delicious taste ever. They make their ice cream using high-quality dairy ingredients daily.
Their ice cream texture and flavor combinations are simply tasty. And you'll be back for more after enjoying their specialty flavors, which include chocolate, vanilla, nutty and fruity.
Sweet Lickz
The Sweet Lickz has a great variety of scoops, floats, sundaes, and waffles topped with ice cream. They also serve unique flavors such as maple walnut, cake bourbon, and Salted Caramel Cookies with Cream.
The banana pudding ice cream is a must-try, and you can take it to the next level with an assortment of toppings.
Jeremiah's Italian Ice
Jeremiah's Italian Ice offers more than just frozen desserts. Their gelati, soft cream, and Italian ice are delicious and unique, with endless flavor combinations.
Their gelati is also impressive, and you should try the Cookie Butter Crumble and Strawberry Shortcake Gelati, which comes with add-ons such as strawberries and syrups. The best part is that you can try some samples before choosing your favorite.
HELOC Loans - The Bottom Line
A HELOC is a great tool that you can use to borrow money when you need it. There are no restrictions on how to use the funds, and it's a great way to eliminate debt, renovate your home, or pay for a divorce.
HELOC is a wise choice if you own a home with enough equity and have the discipline to repay the loan. Talk to your lender today to learn more about HELOC and how you can apply for it.
(Mar 26, 2023)
