What is a HELOC loan?
Home owners may have heard of a home equity line of credit option, commonly shortened to HELOC. What exactly is a HELOC though? A HELOC is a financial product that functions as a second mortgage or, in cases where you own your home outright, even a primary mortgage. The HELOC versatile credit line allows property owners to access cash based on the value of the home. Homeowners can leverage the home’s equity – calculated as the home’s market value minus the outstanding balance on your primary mortgage – into a second mortgage. Homeowners will commonly see lenders offer the opportunity to borrow up to 85% of the established equity, but specific terms may vary among lenders on a case-by-case basis.
When should a property owner consider a HELOC?
It’s important to note that HELOCs are not designed for minor or day-to-day expenses tied to homeownership. A HELOC is commonly used for major home renovations or even adding on features to a home – such as a pool or additional square footage.
Who qualifies for a home equity line of credit?
When looking at issuing a HELOC, lenders will consider a number of factors. It’s recommended to have a credit score of 620+ and equity of at least 15% on the property. Many lenders will also look for a debt-to-income ratio of 40% or less.
What are HELOC rates?
The rate a homeowner can secure on a HELOC will vary depending on their exact situation. Things like credit score, current debt, and the amount a homeowner is looking to borrow all come into play when determining HELOC rates. Most HELOCs feature variable interest rates. If the underlying benchmark interest rates fluctuate, the interest rate associated with a homeowner’s HELOC will also change. However, as a HELOC is contingent on the equity already invested into the property, rates are typically lower than a standard mortgage rate or personal loan.
HELOC Stages
Draw phase: the draw phase can last up to the 10 years after the HELOC is initiated. This is the stage where a homeowner can pull money from the account, up to the established approved amount. Payments must be made toward the interest amount, but payments towards the principal amount are optional during this period.
Repayment phase: this period is after the amount to withdraw has been maxed out, and borrowers begin to make payments on both interest and principal. The length of the repayment stage will vary, although it’s commonly set at 20 years.
How To Secure A Home Equity Line Of Credit in the Baton Rouge and New Orleans Areas
Securing a HELOC is a similar process to securing a home loan or refinancing a home mortgage. Documents such as W-2s, pay stubs, personal identification, and more will be required by the lender to assess and approve your application. HELOC also has an underwriting process tied to it that could take a few weeks – again similar to securing a home loan.
Each situation is unique, and the experts at MidCity Title are here to talk you through your specific HELOC needs and questions. When considering a home equity loan, it’s important to ask questions and get answers you’re both comfortable and confident with. The MidCity Title team in Baton Rouge and New Orleans knows the HELOC process can be complicated. Our goal is to make it as clear-cut and simple as possible. Give our title experts a call today at (225) 236-4252 or schedule a time to see us in-person. Take advantage of the equity in your home with a HELOC!