Buying a home requires a delicate balance between your goals, finances, and strategy. At Flat Branch Home Loans, we strive to offer as many tools as possible to help you get the most out of your mortgage. Our lenders are well equipped to not just put you in the right program, but create a strategy around your new home that allows you to maximize your financial landscape.
When we create your custom mortgage plan, we look at several different options so you get the most our of your money. One option we recently introduced is a Home Equity Line of Credit (HELOC).
What is a HELOC?
A Home Equity Line of Credit (HELOC) is a secondary mortgage you can take out in addition to your primary mortgage to avoid less favorable loan terms on the purchase of your new home. Basically, it breaks apart your loan to help you avoid extra fees or less-than-ideal terms for your home loan. A HELOC can help you do a few different things.
Avoid a Jumbo Loan
If you’re buying a large or more high-value home, you may find there are extra fees and requirements. The FHFA sets a specific limit for the maximum amount for conventional loans, and if your financing is greater than that amount you’ll likely have to finance with a jumbo loan. To keep your mortgage under the conforming loan limit, you may want to finance using a HELOC. It will allow you to break out the amount that goes over the limit to keep conventional loan terms.
Avoid Private Mortgage Insurance
We’ve long preached that you don’t have to have 20% down to buy a home, and there are a variety of loan options that don’t require it. However, if you’re putting less than 20% down on your home, you may find you need to have private mortgage insurance until you gain 20% equity. If you have a significant amount saved, but it’s not quite 20%, a HELOC can help you break up your mortgage amount so that you have more equity up-front. Avoiding PMI can save you money in the long run, so a HELOC is a great option if you don’t want to worry about extra fees.
Separate Debt to Pay off in a Lump Sum
It’s not very often you want to pay off a big sum of your mortgage all at once, but if you receive extra money through a bonus, inheritance, or other lump sum payment, it’s always a good idea to put it towards outstanding debts. However, paying off your mortgage early might come with prepayment fees. You can avoid these fees with a HELOC. If you’re anticipating a bonus or a lump sum payment, you can take out a HELOC for the amount you’re expecting, which you can then pay off all at once. This will help you gain equity faster without having to pay additional fees for prepayment. It’s not a very common situation, but it’s something to consider if you think you might come into some money soon after buying your home.
Access Home Equity
If you already own your home, a HELOC can still help you maximize your mortgage. With a HELOC, you can borrow equity you have in your home to help you pay for other purchases. A HELOC is also a great option if you’re wanting to make renovations to your home. It will allow you to take equity out to use towards your updates. The best part about using a HELOC for home updates is that many times, it ends up paying for itself with the increased home value from your renovations. If you want to access home equity without going through a full refinance, it could be a viable option for you.
A HELOC is another option we can use to help you get the most out of your mortgage loan. Remember, a mortgage isn’t just a loan for your home. You can use it to help you maximize your finances and get the most out of an investment toward your future. Interested in this or one of our many home loan options? Reach out to an experienced lender at Flat Branch Home Loans today!
