How Soon Can You Get A HELOC After Purchasing A Home?
A HELOC can be obtained 30-45 days after the purchase of a home. However, borrowers will need to meet all of the necessary lender requirements, including 15-20% equity in home, good repayment history, and more.
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In this post, we’ll cover everything you need to know about HELOCs, including how they work, how you can apply for one, and much more.
At Credit Union of Southern California (CU SoCal), we make getting a Home Equity Line of Credit (HELOC) easy.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
How soon can you get a HELOC after purchasing a home? Read on to learn more!
What Is A HELOC?
A Home Equity Line of Credit (HELOC) is a type of “revolving” credit that is provided by a lender which has a credit limit, a variable interest rate, and which is secured by the equity in your home.
Credit cards are another type of revolving credit, but they tend to come with higher interest rates than HELOCs, which makes them much more expensive when borrowing large amounts of money.
A HELOC can be used for any type of expense, including home renovations, buying a second home or investment property, paying for college tuition, and paying-off high interest debt, to name a few.
HELOCs are a form of “secured loan,” meaning that all lenders require that the borrower put up security or collateral (in this case the borrower’s home) to secure the loan.
While HELOCs are an excellent way to raise funds, keep in mind that because your home is used as collateral, if you default on the loan, the lender has legal recourse.
Learn more at What Is A HELOC?
How To Calculate Your Home Equity
Home equity is the dollar portion of the home that you own based on how much you owe on your mortgage, as well as any other secured loans that use the home as collateral.
For example, if you do not
have a mortgage on your home, then you have 100 percent equity in the home. People who have a mortgage own only a percentage of the home (and the lender who holds the mortgage owns a percentage of the home).
As you pay down your mortgage your equity increases until the mortgage is paid in full and you have 100 percent equity.
To calculate equity, take the amount your property is currently worth, or the appraised value, and subtract the amount of any existing mortgage on your property.
Appraised value is $600,000 – Amount owed on mortgage is $250,000 = $350,000 equity.
HELOC Eligibility Requirements
Credit unions, banks, mortgage companies, and some online lenders offer HELOCs. Each lender has a unique set of qualifying requirements that their borrowers must meet to be approved for a HELOC. The amount of money that can be borrowed is determined based on several financial factors that we’ll explain below.
Here are some of the most common HELOC eligibility requirements
To calculate your DTI
- Home Equity. 15-20% equity in home is the norm.
- Good Credit Score. Lenders typically look for a minimum credit score of 660.
- Debt-To-Income Ratio. This ratio compares how much your earn each month to how much you owe. Most lenders look for a DTI ratio of 43% or less, although some will accept up to 50%.
add-up all of your monthly expenses and divide this number by your gross monthly income (income before taxes), then multiply the number by 100, to get the decimal form.
For example: Debt of 2,500 + Monthly Gross Income of 5,500 = 0.4545 x 100 + 45.45%.
- Adequate Income. Lenders will ask to see your W2s or 1099s and use these to evaluate your ability to repay the loan.
- Good Repayment History. Have you paid your current mortgage on-time or do you have missed or late payments? Lenders want to know you’re a reliable borrower before they approve the loan.
How Soon Can You Apply For A HELOC?
How soon can you get a HELOC after purchasing a home? If you’ve just purchased a home and are in need of cash, a HELOC can be obtained 30-45 days after the purchase of a home, if
you meet all of the necessary lender requirements stated above.
If you do not meet the borrowing requirements, here are some tips to enhance your financial position so you can eventually qualify for a HELOC, or qualify for a different type of loan:
1) Increasing home equity.
One way to build equity is to make extra payments toward your mortgage principal each month. As you pay down the loan balance your equity will increase.
2) Increasing credit score.
You may be able to build credit
and raise your credit score by paying down or paying off large outstanding debts, such as student loans and credit card debt. This will also lower your debt-to income ratio.
3) Lowering debt-to income (DTI) ratio.
Paying off debts will reduce your DTI, and increase the likelihood of being approved for a loan.
How To Get A HELOC
If you’re interested in learning more about how soon can you get a home equity line of credit after a purchase, start by talking to your current mortgage lender. This could save you time and money because your current lender will have much of your personal information still on file, and they may be able to provide you with a better rate due to your relationship with them. It’s always smart to shop around and speak to a couple of different lenders about HELOC interest rates and terms. Credit unions, banks, mortgage companies and online lenders all provide HELOC options.
If you’re ready to apply for a HELOC, be prepared to provide the lender with the following information:
- Pay Stubs.
- Tax Returns.
- Bank and Investment Statements.
- Mortgage Statements.
- Home Appraisal.
Learn more at: Getting A Home Equity Line of Credit
How Long Does It Take To Get A HELOC?
HELOCs are generally approved and cash dispersed in one to two weeks. The time it takes will depend on how quickly you can supply the lender with the required information and the lender’s underwriting process.
How Long Does It Take It Get a HELOC?
Is Getting A HELOC Worth It?
Whether or not a HELOC is worth it largely depends on your unique financial needs. If you need a large amount of cash to borrow from on a regular basis, then a HELOC could be worth it.
HELOC interest rates are lower than credit cards rates, so you could save on interest payments over the course of the loan. Be aware that HELOCs come with an adjustable rate that will become a fixed rate after the 10-year draw period is up. Before you sign for a HELOC make sure you understand how the variable rate works and what the maximum rate could be.
If you need a large sum of money and plan to pay it back in less than 10-years, a HELOC is a great option.
People who prefer a fixed rate loan may consider getting a home equity line of credit, which is paid back at a fixed rate. However, interest is charged on the entire loan amount whether you use it or not.
No matter which loan you choose, HELOC or a Home Equity Loan, remember that these loans are secured by the equity in your home and failure to repay the loan could result in the lender foreclosing on your home.
HELOC Pros And Cons
Learn more at HELOC Pros & Cons.
|Only pay interest on the amount you spend
||Interest rate may rise during draw period
|No closing costs
||Danger of using funds for frivolous spending
|Low interest rates
||Making the minimum payment costs interest on the balance
|Converts to a fixed-rate loan after 10 years
|Tax advantage if used for home renovation
||Home value drops could cost you equity
||Set withdrawal period
|No fees for cash draws
||You can damage your credit if payments are late
|Higher credit limit than credit cards
||Loan collateral is your home
If a HELOC
isn’t right for you, consider these other alternatives for getting the cash you need:
A cash-out refinance is when a homeowner refinances their mortgage to a new mortgage (typically at a lower interest), and in the process, borrows more money than what is needed to pay off the current mortgage. The first mortgage is paid off and the homeowner gets a lump-sum payout of the extra cash amount at closing. Cash-out refinancing is a type of secured loan that uses the home as collateral. If the loan is not paid back in on-time monthly payments, the lender can put a lien on the property and foreclose. Homeowners who want to take advantage of a new low interest rate and get cash are most likely to see the benefits of a cash-out refinance. See how a cash-out refinance compares to a HELOC
Home Equity Loan
A home equity loan
is a type of loan that lets you borrow money from a lender — such as a credit union, mortgage company, or bank — against the equity in your home. The amount of the loan a borrower is eligible for is determined by the difference between the home’s market value and the remaining mortgage balance. If you qualify for a home equity loan, you can use it for any significant expenses such as home renovation, emergency medical bills, or to pay off debt.
A personal loan
is a loan granted to an individual based in their creditworthiness (not collateral), sometimes called an “unsecured loan” (since no collateral is used to secure the debt). Personal loans can be used for a variety of purposes, but are typically for personal expenditures, like starting a business, paying a medical bill, consolidating high-interest debt, or covering a large expense, such a medical bill, wedding, tax lien or college tuition.
A CU SoCal HELOC or home equity loan allows you to leverage the equity in your home to help you achieve your financial goals. Whether you’re looking to start that big renovation, make emergency repairs, or simply need additional cash-on-hand, we’re here to help make it happen.
- No points.
- No appraisal fees for single unit loans.
- No annual fee.
- No closing costs.
- A generous limit up to $250,000.
- Possible tax deductions on interest payments.
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
APPLY FOR A HELOC TODAY!
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