HELOC – Home Equity Line of Credit – Very Handy Real Estate Tool for Fast Alaska Real Estate Purchase
by Dan Wolf
on Friday, June 22nd, 2012 at 10:41am.
A HELOC, or Home Equity Line of Credit, is a line of credit on your home which allows you to write a check off your homes equity. This is very useful for being able to make large purchases essentially by paying cash. A HELOC loan is secured by your home as a second mortgage, or in second place to your first deed of trust.
There are individuals who can buy a “fixer upper” with their HELOC line of credit, repair the house, and then either refinance the house to get their money back or sell the property (flip it) to repay their line of credit. In a some cases, cash is the only way to buy a property or it is necessary if there are multiple offers on the property. It can be very handy for a disciplined person to use, but could be dangerous for some people; therefore lenders are caution about giving out HELOC loans.
HELOC loans are not typically offered by a mortgage company; they are generally offered by full service local banks. In Anchorage, I know that First National and Wells Fargo can do them.
Terms will vary depending on the risk in the economy, the equity in the property and the credit rating of the borrower.
In Anchorage Alaska, HELOC loans are generally allowable with equity of 20% or 25%, based upon a full appraisal ordered by the bank. Let’s say that appraisal came in at $300,000 and the bank will loan with a loan to value of 75%; further let’s say the owner has a loan, a first deed of trust, for $50,000. That means the amount of the equity line of credit could not exceed $175,000 for the combined line of credit ($175,000 plus $50,000 is 75% of the appraised value).
There are several variables on these loans. The term and rate can be flexible by the lender if the home is a primary residence as opposed to a second home or even determined by the borrows relationship with the financial institution, for example, if the borrower has saving or a sizeable stock portfolio with the bank, he might receive a preferential rate or terms.
The base rate the bank could charge is usually a floating rate such as prime + 1.5% up to Prime +6% depending on how much is being borrowed, the LTV of the collateral and the borrower’s credit score.