In North Carolina, homeowners can tap into their home's equity with a Home Equity Line of Credit, or HELOC. This financial tool allows homeowners to borrow money using their home as collateral.
A HELOC typically has a variable interest rate, which can be lower than a credit card or personal loan, but may change over time. Homeowners can use the funds for various purposes, such as home renovations, paying off high-interest debt, or covering unexpected expenses.
By borrowing against their home's equity, homeowners can unlock a significant amount of money, often up to 80% of their home's value. This can be a valuable resource for those who need access to cash.
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What Is a HELOC?
A HELOC is a line of credit that lets you tap into your home's equity, which is the current market value of your home minus the amount you owe your mortgage lender. You can borrow against a portion of your total equity, typically up to 75 to 90% of your home's value.
Related reading: How Do Home Equity Loans Work
To calculate your potential HELOC amount, simply subtract your outstanding mortgage balance. For example, if your home is valued at $250,000 and you owe $150,000 on your mortgage, your potential HELOC amount is $50,000.
Your credit score and debt to income ratio also play a role in calculating your HELOC amount. But unlike a credit card, a HELOC uses your home as collateral, so it's smart to borrow only what you need.
Some lenders may charge you fees to open a HELOC. You'll generally have the option to choose a variable or fixed interest rate, depending on your situation.
Here's a breakdown of the key terms:
- Draw Period: The time period during which you can draw funds up to your available limit.
- Repayment Period: The time period after the Draw Period ends, during which you must pay off the balance before the maturity date.
You can borrow a total combined amount of 75 to 90% of your home's value, and your lender will determine how much you can borrow based on your home's value and your outstanding mortgage balance.
Related reading: How to Use a Heloc to Buy a New Home
Benefits and Features
A Home Equity Line of Credit (HELOC) can be a flexible financial tool, allowing you to borrow only what you need.
You can choose from fixed or variable rates, giving you more control over your financial situation.
Having a HELOC can have advantages, especially when used for home improvements, as the interest you pay could be tax-deductible.
It's a valuable asset, and by putting your home equity to work for you, you can make the most of your financial situation.
With a HELOC, you can consolidate multiple credit cards into one line of credit, making it easier to manage your debt.
Qualifying and Requirements
To qualify for a home equity line of credit (HELOC) in North Carolina, you'll need to meet certain requirements. You'll typically need a FICO score of at least 680 to qualify, but some lenders may prefer a credit score of 720 or more.
Lenders will also look at your home equity, which is the current market value of your house minus what you owe on your mortgage and any other loans and/or liens against it. For example, if your house is currently worth $250,000, and you owe $125,000 on the mortgage, then you have $125,000 in home equity.
Your loan-to-value (LTV) ratio is another important factor. This is calculated by dividing the amount of your mortgage and other loans against your house by the value of the house, then transforming the result into a percentage. A maximum LTV ratio of 80% is common, which means you can borrow up to 80% of your home's value.
To calculate your potential HELOC amount, subtract your outstanding mortgage balance from 80% of your home's value. For instance, if your home is valued at $250,000, 80% of that is $200,000. After subtracting your mortgage balance of $150,000, your potential HELOC amount is $50,000.
Your debt-to-income (DTI) ratio will also be considered. This is the total of all your monthly debt payments, divided by your gross monthly income. A maximum DTI varies for different lenders, but generally, the lower your DTI ratio, the easier it is to qualify for a HELOC.
Here's a summary of the typical requirements for a HELOC in North Carolina:
- FICO score of at least 680 (or 720 or more for some lenders)
- Home equity of at least 20% (or more for some lenders)
- Maximum loan-to-value (LTV) ratio of 80%
- Maximum debt-to-income (DTI) ratio varies for different lenders
Applying and Rates
Applying for a Home Equity Line of Credit (HELOC) in North Carolina requires meeting certain requirements, including having a home classified as a primary residence in North Carolina or South Carolina. Only members in good standing with CTFCU are eligible to apply or make advances on an active HELOC.
To apply, you'll need to provide information about your home's value, and no appraisal fee applies to electronic appraisals only for loan requests under $250,000. However, if a full appraisal is required, the cost will be your responsibility.
The minimum line of credit for a HELOC is $10,000, and line advances are available for up to 10 years. Your payment will be based on the balance after each advance and is subject to change each time an advance is made or annually on the first day of July.
Your payment may never be less than $100 or the full amount you owe, whichever is less. The annual percentage rate (APR) can change quarterly on the first day of January, April, July, and October, but it will never go below 4.0% at any time during the term of the plan.
Here's a summary of the HELOC rates and terms:
Frequently Asked Questions
How much would a $50,000 HELOC cost per month?
A $50,000 HELOC can cost around $384 for interest-only payments or $457 for principle-and-interest payments per month. The exact cost depends on the interest rate and payment terms.
What is the downside of a HELOC?
A HELOC can come with significant risks, including the possibility of losing your home if you're unable to pay back the loan, and a harsh reality check when the payback period begins. This can be especially challenging if you've become accustomed to having "bottomless funds" during the draw period.
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