Understanding your HELOC!!!
If you’re on this page there is s a good chance that you already know a fair bit about home equity and want to explore its financial benefits. Well, HELOC or a Home Equity Line of Credit can be the ideal answer that you’re looking for. You can use the home equity that tour has regained on your property by paying off your primary mortgage to apply to open a HELOC account to enjoy a revolving line of credit that also has the benefits of a low-interest rate. The most important thing is, you can withdraw and pay back at any time you want. By the end of this blog, you will have a fair idea of what a HELOC is, how it works, and what are its advantages, read on.
What is a HELOC?
HELOC or a Home Equity Line of Credit can be considered as a revolving amount of credit that is secured against your home. You will be using the equity of your property as collateral to get access to the funds and the lender would decide how much they can offer as a line of credit. You should get your property appraised by a professional before applying for a HELOC account. This is because, if you’re taking up this scheme with a mortgage, you can access a maximum of 65% of your property’s market value. The mortgage balance and HELOC combined cannot exceed 80% of the market value. For example, if your home is worth $500,000 and you have a mortgage pending balance of $200,000 then with the following formula:
$500,000 X 0.80 = $400,000
$400,000 – $200,000 = $200,000
$200,000 / $500,000 = 40%
You can access 40% of your equity as HELOC.
The qualification criteria:
Yes, there are some conditions that you have to meet before signing up for a HELOC plan; these are:
- You should provide some paperwork that proves that you own your home
- You should have a minimum of 35% in home equity when you’re using a stand-alone HELOC as a substitute for mortgage
- You should have an acceptable credit score
- Proof of stable income
- An acceptable total debt to service ratio
- You will also have to pass the mortgage stress test
- A reviewed home appraisal
Your lender would help you with these steps and once you meet these requirements, your application would be approved without any hassle and you will have access to your funds.
How can a HELOC help you?
A HELOC account has several benefits that you can reap. Assuming that you have enough equity in your property, you will have instant access to a low-interest loan that also comes with favorable repayment options.
- You can use the funds in your HELOC to pay off bad loans, high-interest credit card bills as well as your primary mortgage
- Use the funds for medical expenses, educational expenses, home renovation, and much more.
- If you want to start a business, you can use the HELOC funds as a capital
- You can make pre-payments on your HELOC without any penalty.
If you want to know more, contact 1ONEFUND Financial, they can resolve all your queries and share everything necessary for you to make a decision.