SECOND LIEN PROGRAMS
(Stand Alone & Concurrent)
A loan to purchase a home is usually the first mortgage lien recorded on a property; subsequent loans depend on the amount of owners’ equity in the home and generally require a new appraisal. If you need extra money periodically, a Home Equity Line of Credit (HELOC) might be your best choice, as it allows you to access cash through a second mortgage while your current mortgage remains unchanged. Once the lender approves you for a maximum line amount, you can access the available funds as you need them.
To qualify for a HELOC, you need to have available equity in your home, this means that the amount you owe on your home must be less than the total value of your home. You can commonly borrow up to 85% of the value of your home minus the amount you owe. Generally, a lender looks at your credit score and history, employment history, monthly income, and monthly debts – Just as when you applied for your mortgage the first time.
A home equity line of credit (HELOC) has multiple benefits and advantages compared to other types of loans:
Low closing costs
Closing costs are low or nonexistent. Some lenders may waive them altogether, especially if you have good credit.
Low interest rates
HELOCs can offer lower rates than unsecured loans like credit cards or personal loans.
A HELOC lets you borrow when you need it and in the amounts you need. And you only pay interest on what you’ve borrowed.
As HELOC is a type of mortgage, the interest paid on up to $100,000 in loan principal is tax-deductible for most borrowers who itemize.
No restrictions on use of funds
When you set up a HELOC, you can use the funds as you wish. You don’t have to justify your plans for using them as you do with many other types of loans.
Caps on rate increases
Your HELOC will have a maximum cap on how high it can climb, so even if interest rates rise, you have some protection.
No usage fees
Most lenders do not charge a fee for drawing funds from a HELOC. A few of them do, though, so you want to be sure and check the terms before closing.
You can pay back the principal whenever you like. If you need a short-term loan, you could take a draw on your HELOC, pay interest for a short term, and then pay off the balance once you receive your funds.