You could use the funds to cater to more significant expenses or consolidate higher-interest-rate debts. This guide will walk you through everything you need regarding this loan option.
What is a HELOC loan?
A home equity line of credit is an ideal low-cost financing option in today's market. Home prices continue to rise, making HELOCs a suitable choice for homeowners. However, higher rates have made this loan option less attractive. Previously, homeowners relied upon cash-out refinancing to get cash in exchange for home equity.
With a HELOC, you'll get a loan facility that resembles your credit card. You'll access a revolving credit line where you can make continuous draws for any purpose. While most borrowers use the money for debt consolidation or home improvement, there are no restrictions on how you use the money.
This line of credit has draw and repayment periods to know when you should make draws and repay the loan. This loan option usually has a 30-year model.
Spend as much or as little as you please. The draw period lasts for ten years. During this period, you'll have access to the entire credit line. Also, most lenders won't require you to make any payments during the draw period.
However, you could pay interest on the amount you spend. The amount of credit usually gets replenished when you repay part of your balance during this period, allowing you to borrow against it again if the need arises.
Later on, you'll have 20 years to pay off your expenses. Start making total principal and interest payments during the repayment period. Some borrowers opt to start making principal payments before the repayment period begins. This approach ensures that you won't have to make larger monthly payments.
Qualification Requirements for HELOCs
Here's what you need to have to qualify for this loan option. Similar to other mortgages, the home equity line of credit has specific eligibility requirements you must meet. Sufficient home equity and a good credit score rank high among the qualifying requirements.
Sufficient Home Equity
HELOC lenders require that whatever you owe on the home doesn't exceed the home's value. To qualify for the loan, you should have at least 15% to 20% home equity. However, you'll still need to keep in mind the borrowing limits which depend on other factors.
Mainly, your loan-to-value and combined loan-to-value ratios will influence the amount you receive. Your LTV ratio assesses how your mortgage balance compares to the home's current value. On the other hand, the CLTV ratio considers all your property debt against its value.
A CLTV ratio of less than 85% is sufficient to earn your loan qualification. However, some lenders will approve your loan with a ratio as high as 90%.
Credit Score
Your credit score and repayment history also influence your qualification status. Lenders will only approve your loan if your credit score is mid-to-high 600s. Such high credit scores indicate that there are minimal chances of you defaulting on the loan.
Higher credit scores will also earn you better interest rates, saving you lots of cash. Lenders can also determine your risk levels using your payment history. A consistent payment history indicates that you can reliably repay your debt.
Monthly Income
One big question lenders ask is whether or not you can afford repayment. The surest way of determining this is by assessing your income status. Lenders will request documentation that demonstrates your income information and employment status.
If you are a waged employee, you'll need to provide your pay stubs and recent W-2s. Federal tax returns will suffice for self-employed borrowers. Gather your retirement award letters, 1099 forms, or benefit statements to demonstrate other income streams. You could also offer a benefit verification letter with social security benefits.
Debt-to-Income Ratio
Your debt-to-income ratio refers to the amount you owe on your monthly debts compared to your monthly income. Lenders will use your DTI ratio to determine whether or not you can handle new debt obligations. A high DTI ratio indicates that you might not be suitable to get another loan.
Most lenders approve loans for borrowers with a DTI ratio between 43% and 50%. Kindly note that some lenders might require even lower ratios before approving your loan.
HELOC Application Process
Do you meet the qualification requirements for this line of credit? Follow these steps to apply for the loan.
Lender comparison
Different lenders offer different loan terms. It is usually helpful to compare lenders to find a loan option that best serves your needs.
While comparing lenders, assess the interest rates, repayment terms, eligibility requirements, and charged fees. Also, try to find a lender well-versed in the line of the credit application process to have a seamless process.
Fill out the Application
Upon settling on your preferred lender, proceed to complete your application. Most lenders often let you complete an online application. However, traditional banks might require you to visit their local branch to complete the application.
While making your application, ensure that you have all the relevant documentation. Gather your bank statements, pay stubs, or W2s for a seamless loan application process.
Home Appraisal
The HELOC loan usually depends on your home's current value. Therefore, your lender will request a home appraisal to determine your home's value and how much you'll qualify.
Mostly, your lender will schedule this appraisal. However, set aside $300 to $400 as your appraisal fee.
Proceed to Close
After the home appraisal, expect a call from your lender notifying you about the loan approval process. You'll also get information about interest rates and credit line limits. If you agree with these terms, you can sign the loan documents.
Access Funds
Your lender will give you three business days to back out of the loan process. If you don't change your mind, you'll have access to the loan and can start withdrawing the funds.
75-15 HELOC for condos in Florida
With this loan option, you'll get seventy-five percent maximum financing on your first mortgage. You could also get 90 percent combined financing on both your mortgage options for your primary residence. Besides, lenders won't analyze any association budget.
Typically, lenders will verify your condo insurance, meaning that your fidelity bond coverage won't require verification. Most lenders won't pay much attention to the number of owner-occupied and investors.
The application process for this loan option is also much more accessible, thanks to the limited condo questionnaire requirement.
Divorce-Friendly Loan
Deciding how you'll pay out your spouse's home equity often complicates divorce. Divorcing couples are turning to home equity lines of credit offering many reprieves.
Previously, homeowners relied on cash-out refinances for this purpose. However, this loan option often causes a doubling in your mortgage rate.
Using HELOCs during divorce proceedings ensures that you leave your primary mortgage intact. Essentially, this line of credit will serve as a second mortgage. Use the funds you receive to clear the divorce settlement payout.
Besides, you won't lose any additional money as agent commissions and other fees. Typically, you'll also receive 100% combined LTV. You could also lock in a great rate after closing.
The alternative to HELOC loans would be a cash-out refinance. However, this option might cause you to lose an incredible interest rate on your first mortgage.
Ideal for Home Improvements
The home equity line of credit usually depends on your home's current value. Using the loan to cover repairs on your primary residence ensures that you can take advantage of low to no closing costs. Besides, you'll enjoy more flexibility when borrowing and repaying the loan amount.
The funds will ensure that you improve your home's value. This loan option also features increasingly flexible underwriting guidelines.
Benefits of HELOC loans
A clear view of the loan's benefits can help you decide on the loan. The loan's advantages range from lower interest rates to special introductory interest rates. These and more benefits make the loan attractive for many homeowners.
Here's more insight into the top advantages of this line of credit.
Lower Closing Costs
One of the leading advantages of the HELOC is that you won't spend as much as you would on other home equity loans. Some lenders could also offer you zero upfront closing costs. Scout local credit unions and national banks to find lenders who won't charge you any closing costs.
If you must pay upfront closing costs, these might entail appraisal fees, credit reports, and taxes. After loan closing, you might need to pay an annual transaction or recording fee. Some lenders could use an automated valuation model that helps you avoid an appraisal, usually your most significant expense.
Large amounts of cash
HELOCs use your home as collateral, meaning that lenders are convinced that you are less likely to default on your loan. As a result, they'll offer more significant loan amounts compared to typical personal loans. However, your loan amount still depends on your home equity.
Also, your loan-to-value ratio determines how much loan you'll receive. Essentially, you'll need to reduce the debts your home secures to increase the chances of getting a higher loan amount. Remember that different lenders will offer other loan limits. Your income and credit score also influence your loan amount.
No Restrictions on Expenses
Most borrowers use the money to cover home improvement expenses or complete pending medical bills. You could also use this to start a business or pay up some of your college fees. Once you receive this amount, you won't need to provide an account of your expenses.
Using the loan for home improvement projects makes you eligible for tax benefits. You'll have interest deductions when you start to repay the loan. Avoid using the funds on frivolous activities that might not add value.
Pay for what you Spend
Unlike other home equity financing options, you won't need to pay the whole loan amount with the HELOC loan. Instead, your lender will only require you to pay for the amount you spend on the loan.
Ideally, this loan option offers you extended flexibility, especially for unpredictable projects. You can tap into a significant amount of funding without worrying about interest on the money you don't use.
Lower Interest Rates
Although interest rates depend on your credit score, HELOCs usually have lower rates than credit cards or personal loans. However, remember that this loan option is a variable-rate product. Expect the rates to fluctuate over time.
Some lenders can allow you to fix your interest rate so your interest rates won't pile up your balance. Leveraging this advantage will save you lots of cash down the road.
The only downside is that you might have specific fees or higher initial interest rates. The good thing is that you'll have more stability in an ever-rising rate environment.
Introductory Offers
Do you need some motivation to close the loan deal? Look out for available introductory offers. Some lenders offer waived fees or lower initial interest rates. Such requests quickly cause homeowners to sign up for the loan as they get to save some money upfront.
However, ensure that you consider other loan features beyond the introductory offers. Compare different lenders to find a loan option that best suits your specific loan needs.
Top places to Get Ice Cream within Wakulla County, Florida
Here's a look at places to drop in for ice cream:
Aunt Ebby's Ice Cream
Enjoy the biggest scoops within Wakulla County whenever you visit Aunt Ebby's ice cream shop. Choose from the large variety of hand-dipped ice cream treats. You could also ask for dairy-free and no-sugar-added options.
There's something for everyone at this laid-back ice cream shop. Find the tastiest flavors that vary from season to season. The salted caramel, cookies, and cream hardly disappoint. Bring your family here to cool down after a busy day in the Florida sun.
You'll also find a good variety of reasonably-priced toppings and ice cream. Enjoy classic bluebell ice cream flavors that make this place worth a visit.
Sugar Rush Bar
Are you in the mood for something sweet? Stop by this ice cream parlor for the best treats of desserts, ice cream, milkshakes, and candy. Try out the cappuccino crunch ice cream that is always delicious. You'll find huge portions of pure deliciousness.
The available milkshakes come in incredible signature flavors. Regulars love the oreo-ology and pecan flavors. The delicious chocolate milkshake with graham crackers will do just fine for the milkshakes. You could also consider the mermaid or gourmet milkshakes that'll deliver an unmatched thrill.
Bruster's Real Ice Cream
If you crave ice cream, go to Bruster's for delicious ice cream flavors. You'll especially love the chocolate raspberry truffle flavor. The mint chocolate chip and waffle cones will also suit multiple cravings.
You could also try out the brownie sundae or the strawberry shortcake sundae for your afternoon treat. The new exclusive strawberry waffle cone will perfectly mix with your ice cream choice. This ice cream parlor also has an incredible selection of Italian ice flavors and dairy-free Sorbet.
Your kids will also love the cotton candy flavors served by friendly and accommodating staff. The ice cream is always fresh and soft, while the waffle cones are always crispy. If you love Oreos, place your order for the Oreo flavor, which has chunks of Oreo throughout.
Jeremiah's Italian Ice
Enjoy tasty frozen treats that come with a smile. Make Jeremiah's Italian Ice your go-to place for the best desserts, ice cream flavors, frozen yogurt, and shaved ice. This ice cream parlor offers the perfect mix of ice and soft ice cream. Choose from the numerous delicious flavors that are on offer.
The soft ice cream features a classic treat that is certified, rich, and creamy. The shop lets you choose between the plain soft serve, Italian ice, or a combination of both, referred to as the gelati. Ask for the layer-ins that offer a fun option.
Make the most of Your Home Equity with a HELOC
A home equity line of credit is always suitable if you have sufficient home equity. The funds could help you fund massive projects while letting you pay for only what you use.
