Home equity lines of credit
A home equity line of credit (HELOC) is generally a 2nd mortgage loan you take out in addition to the loan that you currently have. Most homeowners take out a HELOC to finance home renovations. Or, you could take out a HELOC to consolidate debt.
When we work with clients who take out HELOCs, it’s generally to help them finance larger purchase prices with lower down payments. Taking out two loans rather than one loan allows you to do 3% down up to prices of $724k, or 5% down up to $977k.
A HELOC monthly payment for the first ten years is interest only. In this time period, a homeowner is able to pay down the loan balance and then draw back upon it…somewhat like a credit card. After the first ten years, the HELOC payments convert to principal and interest, over the remaining twenty year period, and drawing upon the balance is no longer allowed.
HELOC interest rates are always based on Prime. Prime is 3% above the Federal Funds rate. So if the Federal Funds rate is 1.5% (as of Dec 2017), then Prime is 4.5%.
Depending on your credit and how much you will borrow compared to the value of your home, the effective interest rate of a HELOC may be just below, or just above Prime.
While we do not directly issue HELOCs, when we are working with clients purchasing we will help them obtain one through one of our partner credit unions.
The two credit unions we work with regularly are the Fairfax Federal Credit Union and Tower Federal Credit Union. Joining one of the credit unions is simple, and applying for a HELOC is similar to applying for another type of mortgage. Fairfax FCU offers HELOCs up to 93% of the value of your home, and Tower Federal offers HELOCs depending on the situation up to potentially 95%, or 97%, or even 100%.
If you are already a homeowner and interested in taking out a HELOC, the contact info for the folks we work with regularly is copied below. You will need to reach out to them to apply for a loan, order an appraisal through the credit union, and you can close after your loan is approved.
If you are purchasing and taking out a HELOC simultaneously with a purchase loan we are financing, we’ll reach out to them on your behalf and they will follow up with the application items which are necessary. In a simultaneous purchase, the credit union will utilize the appraisal that we complete at First Home Mortgage.
Fairfax Federal Credit Union: Bill Cook
Tower Federal: Reed Voorhees
301-497-7000 ext. 7212
Here is a great Post article on whether the interest on a HELOC is tax deductible after the 2018 tax changes: Link to article