HOW DOES A HELOC WORK?
Borrow Against Your Home Equity
A Home Equity Line of Credit, commonly known as a HELOC, is a type of second mortgage that enables homeowners to access funds by leveraging the equity they’ve built up in their home.
This flexible credit line can be used for virtually any purpose but is typically applied to big-ticket expenses such as home renovations or consolidating high-interest debts.
Qualifying for a HELOC is similar to a mortgage refinance
Extremely flexible funding— can be applied to virtually any use, such as home renovations, educational costs and high-interest debt consolidation
When used for home improvements, HELOC interest payments may be tax-deductible
FAQs About HELOCs
What are the major pros of HELOCs?
Answer:
- Debt Consolidation with Reduced Interest: HELOCs can be advantageous when they enable you to consolidate your debts at a more favorable interest rate.
- Versatility: HELOCs offer flexibility for various expenses like medical bills, college tuition, or other financial needs.
Access to Substantial Funds: A HELOC could be the preferred choice for borrowing significant amounts of cash, particularly for expensive home improvement projects. - Possible Tax Benefits: The interest paid on a HELOC may qualify for tax deductions if the funds are used for home improvement purposes.
What are the major cons of HELOCs?
Answer:
- Initial Expenses: Before obtaining a HELOC, you may be required to cover expenses such as application fees, home appraisal, title search, and legal fees.
- Home as Security: Failure to make HELOC payments could result in the loss of your home, as it is used as collateral for the loan.
- Possible Rate or Payment Adjustments: Market fluctuations can cause your interest rate or monthly payments to rise.
Not Suitable for Routine Expenses: It’s typically not recommended to rely on a HELOC for everyday spending.
What is an FHA203(k) loan and how does it work?
Answer:
An FHA 203(k) loan is a type of FHA loan that is specifically for bundling the costs of necessary renovations or home improvements into the mortgage loan at the time of purchase or refinancing. It is a great option for people who have found a home that needs a little love before it is 100% move-in ready. Or, some borrowers choose to take out an FHA203(k) refinance loan later, when certain updates to the home become necessary.
At Fairway we offer FHA Limited 203(k) loans, which can provide up to $35,000 (including a contingency reserve) to help make non-structural home improvements or renovations, such as updating a kitchen or bathroom, replacing flooring, purchasing new appliances or repairing the roof. We also offer an FHA Standard203(k) for homes that may need more than $35,000 in renovations, or for homes where the necessary renovations may be more structural in nature.