Looking to take advantage of the equity in your home?
A HELOC allows you to access your equity without refinancing your existing mortgage.
What is a HELOC?
A HELOC is a form of revolving credit in which your home serves as collateral. With a HELOC, you are approved for a specific amount of credit. You can then borrow funds from that line of credit as needed.
The interest rate on a HELOC is typically a variable interest rate. This rate changes based on a predetermined index. At KTL, the interest rates for our HELOC solutions utilize The Wall Street Journal Prime Rate plus a margin that is determined by your loan characteristics.
What can it be used for?
Many people use HELOCs to consolidate debt or pay off credit cards, for home improvements or renovation projects, education costs, medical bills, or to cover other major purchases or expenses. There are virtually no limitations on what you can use HELOC funds for.
With a HELOC, you have a credit limit, similar to the limit on a credit card. This limit is the maximum amount that you can borrow.
How does it work?
In the world of HELOCs, a draw is the same thing as a withdrawal. It means you have chosen to withdraw funds from your available credit. You can also think of it as borrowing funds. Every HELOC program is different, but our current solutions require a minimum initial draw at closing. The amount of this initial draw varies based on the full line (maximum credit line) that is extended to you as part of your HELOC.
Our HELOC programs offer a 10-year draw period during which you can borrow and pay back funds as needed. A 20-year repayment period then follows the draw period.
Monthly payments are only required during the draw period when you have outstanding funds.
The payments during the draw period are calculated using the current balance. Minimum required payments during the draw period are based on the loan program and can be calculated to pay towards only the interest due on the borrowed funds, or the principal and interest.
How much can I borrow with a HELOC?
The amount that you can borrow using a HELOC is based on the amount of equity that you have in your home. HELOC programs allow you to borrow up to a certain amount of your equity. This number is determined by looking at the current market value of your home, taking a percentage of that value, and then subtracting from that the balance owed on your existing mortgage (if applicable).
Our HELOC solutions allow you to borrow up to 89.99% of your home’s current value for your primary residence. If you are taking out a HELOC on a second home, you can borrow up to 80% of your home’s current market value.
To determine how much you could borrow with a HELOC, you would first consider the current market value of your home. Take that amount and multiply it by 89.99%. Then subtract how much you currently owe on your mortgage. This gives you the amount of equity that you can take advantage of with your HELOC.
|Appraised Value of Home||$200,000||$|
|Maximum Allowed Loan to Value for Primary Residence||X 89.99%||X 89.99%|
|Percentage of Appraised Value||= $179,980||= $|
|Less Balance Owed on Current Mortgage||– $125,000||– $|
|Potential Line of Credit with a HELOC||= $54,980||= $|
|Sample Values||Your Values|
Step 2: Submit your Documents
To start, you will need a copy of your driver’s license and your most recent pay stub, if applicable. Your Loan Officer will let you know exactly what other documents you’ll need to submit.
Step 3: Submit to Underwriting
The lender’s underwriter will review your HELOC application and documentation.
Step 4: Determine Property Value
HELOCs require a 3rd party determination of the property’s value. Some loans may require a full residential appraisal. Other scenarios may allow for a collateral evaluation, which is a streamlined process that does not require a walkthrough of the property.
Step 5: Approval
After your HELOC application is fully approved, you’re heading to the closing table!
Step 6: Closing
It’s time to close on your HELOC! While there are no lender fees with a HELOC, there are still closing fees associated with the legal process of closing the loan. This may include credit report fees, flood certification fees, processing fees, recording fees, and fees charged by the settlement agent.
Step 7: Get your cash!
Most lenders will provide a checkbook with access to your line of credit. You will receive this in the mail approximately three weeks after closing.
Your initial draw will be available to you immediately, and will typically be wired directly to your bank.