Financing can definitely be one of the most complicated parts of the home buying process. Even after you purchase the home there are financing considerations. I’m fortunate to have some great financing resources who make complicated things easier to understand. One of those is Jonathan King with PMA Loans. I asked Jonathan to share a bit about equity lines, aka HELOC’s (Home Equity Lines of Credit). It’s a term we all hear, but many people wonder “What’s a HELOC?”, aren’t sure when to procure one or how it can be used.
Here’s Jonathan’s quick overview on HELOC’s. If you have further questions, click on his link below and I know he’d be more than happy to answer them!
An equity line is a great way to leverage the equity in a new or current home. Equity lines can be obtained during ownership of a home or during the home purchase process. Different scenarios will have different requirements, but in general you can borrower up to 90%cltv (combined loan to value) of the home.
Equity Line Interest Rates & Payments
Equity lines will almost always have a higher interest rate, but a borrower is only paying interest on funds they are using. If a borrower has a $500k equity line with a $0 balance, they pay $0 interest. For the first 10 years, they can use and payoff (like a credit card,) the available line. After the 10th year, the borrower is required to pay down the outstanding balance over a 15 or 20 year period. The borrower can always obtain a new equity line at the 10 year mark.
Securing Equity Lines During Purchase Process
During the purchase process, buyers may want to keep some of their funds in order to complete home renovations after closing. In some scenarios, lenders require reserves. This means that funds that buyers plan to use for down payment actually must be used to meet the bank’s reserve requirement.
Securing Equity Lines Post-Purchase
Existing homeowners can obtain an equity line for “emergency” costs. Most banks have a 6 month waiting period meaning that after purchase, the owner must wait 6 months in order to obtain an equity line. PMA Loans does not have a waiting period. Borrowers can start the process the next day after closing.
IMPORTANT NOTE:I have not and will not verify or investigate the information supplied by third parties.
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