USING A HELOC TO BUY YOUR HOME

Our professional Land Pro Real Estate Agents at United Country Midwest Lifestyle Properties continue to provide our clients with outstanding service and real estate loan knowledge. Our agents keep up-to-date on all forms of finance and loan programs available to our clients. Today I’d like to share with you a popular line of credit option called, HELOC.

A HELOC, Home Equity Line Of Credit, is another great option to use for the purchasing of another home while you wait for your current home to sell. In addition, a HELOC can be a tool for you to make changes to your current home for a home sale, or to simply upgrade your home.

HOW DO I QUALIFY FOR A HELOC?

Typically, someone applying for a HELOC must have:

• Good credit score- 675 and above
• Positive cash flow
• The money, generally, is only allowed be used for a primary or secondary residence

The process is much like a loan. Your bank will have paperwork for you to fill out. The amount you will be allowed to draw from will be determined by your credit score, as well as a limit of 80-90 % of your current mortgage value.

If both you and your spouse or significant other apply, typically the bank will use the better of the credit score between the two of you.

TURN AROUND TIME

Most banks will require an appraisal of your current home. The average appraisal cost is generally around $1000. In some cases, an electronic evaluation is able to qualify over an actual appraisal. Closing costs for your HELOC tend to be cheaper as well. HELOC’s, like Bridge Loans, have their risks.

The average turn-around time of a HELOC closing is around four weeks. Be aware that some banks have a three-day wait AFTER the closing date.

INTEREST/APR

Because of the nature of a HELOC, (withdrawing money as you need), the balance may change daily. The interest lies only with the money you have WITHDRAWN. Interest will fluctuate with the amount of money withdrawn and the actual days in the current month- 29, 30, or 31 days. The rates are referred to as, ARM’s, Adjustable Rate Mortgages.

Be careful, don’t confuse yourself with your HELOC’s APR. Folks tend to look at the APR on their first mortgage loan and then compare that to the APR on their HELOC. The APR on a HELOC is strictly the interest rate, nothing else. With a HELOC, the APR doesn’t represent any “points” or upfront costs like a traditional mortgage does.

ADVANTAGES/DISADVANTAGES

Just like everything in life, a HELOC has its advantages and disadvantages. Here are some advantages:

• Convenient for funding random needs
• You pay interest only on what funds have been withdrawn
• Upfront costs are generally low
• Inquire with the bank if your HELOC can be converted from a variable rate to a fixed rate- this is a HOT option to have, especially if you are withdrawing one large sum.
• Generally only for 6 months

Below are a few disadvantages of a HELOC:

• Variable interest rate- As of today’s date, the Fed is set to raise rates; with the variable interest you run the risk of skyrocketing interest rates, meaning your draw will cost you more than a regular loan
• Prime rates control these lines of credit
• The rates are not controlled or limited
• In rough financial waters, your lender can cut/cap your line of credit, leaving you with a project half done or incomplete

As always, your local bank is the first place to start when looking for financial help. Be sure to talk with your lender about closing costs, the margin (super important to you), minimum draw, minimum average loan balance, maximum draw, annual fee, or cancellation fee.

United Country Midwest Lifestyle Properties Land Pro Real Estate Agents have great community lending connections! Let our knowledgeable staff assist you to bring your property dreams to life. We’ll help you stand on your investment®!