The benefits of a HELOC (or Home Equity Line of Credit) are easy to understand - tap into your equity without wiping out the 3.5% you have on your first.

Mortgage and real estate professionals, myself included, have a tendency of glossing over the basics by assuming that everyone always knows what we're talking about. So in honor of VirtuaLending rolling out our 5 DAY CLOSE HELOC, I want to go over some general information and questions I get asked frequently regarding HELOCs.

What is a Home Equity Line of Credit? 

A HELOC is simply a line of credit that utilizes the equity in your property as collateral. Typically, a HELOC will be a 2nd position lien placed on the title of your home in addition to your 1st mortgage (2nd position just means that the servicer of the 1st lien will be paid off first, the 2nd position lien servicer paid off second, etc.).

Who qualifies for a HELOC?

For our 5 day close HELOC, a homeowner with a minimum of a 620 FICO score (680 for 2nd home/investment) that has owned the property for at least 90 days is eligible.

What is the interest rate on a HELOC?

For the 5 day close HELOC program, we actually cannot quote a rate. An application is required to be completed, and from that point, the applicant has a choice between 3 different rate options including amortization terms (5,10, 15, and 30 years).

What is the difference between a HELOC and a closed-end 2nd mortgage?

Both a HELOC and standalone closed-end 2nd mortgage are mortgage liens that take 2nd positions on a property. The difference lies in 1) the underwriting process - a HELOC offers a 5 day timeline from application to close, and does not require an appraisal; standalone closed-end 2nds are underwritten the same way most loans are - underwriting, appraisal inspections, closing, then funding. 2) how funds are accessed - HELOCs may offer draw periods in which a borrower may take out additional funds after a certain amount of time; 2nd mortgages are typically fixed amounts recorded at closing.

What can I use the funds for? Are there any restrictions?

Funds on a HELOC may not be used to refinance or pay off an already existing HELOC. The funds may be used for any other purposes - personal or business. 

Are there any other options besides a HELOC to access my equity?

Yes! There are closed-end 2nd liens, a typical cash-out refinance, and even reverse mortgages. The cases in which these options would be preferred over a HELOC would be case specific.

What documents will I need to get started to qualify for a HELOC?

You will need the following: a completed and accurate loan application (link to application here), valid government ID, and income docs (at least 1 of the following: bank account data, paystubs, or tax filings).