There has never been a better time to leverage the equity in your home and build up an investment portfolio. According to Black Knight, the average American homeowner has more than $185,000 inaccessible home equity, thanks to soaring house prices.
One way to use equity to secure affordable funds is through a home equity line of credit - or HELOC.
A HELOC is a form of revolving credit that is secured against your home. It works very much like a credit card that allows you to repeatedly borrow money for any purpose at a relatively low-interest rate.
Here we will walk you through how a HELOC works and why it makes sense for you to get one.
How a HELOC works
When you take out a HELOC, you can continuously tap into the funds and once you have repaid the remaining balance, it is replenished again. You can withdraw as much as you need during the draw period up to the agreed limit. A HELOC usually works on a 30-year model. This means that a draw period typically lasts up to 10 years and is subsequently followed by a repayment period, usually 20 years.
Why a HELOC makes sense for you
If your credit rating is at least 620 and you have more than 20 percent equity in your home, then you are in an ideal position to apply for a HELOC and are more likely to fit the criteria.
There are many reasons it might make sense for you to apply for a HELOC. For example, you may have an upcoming home renovation, medical expenses, or college tuition to pay. Alternatively, you may just be looking for a way to build up your property investment portfolio. Whatever, the reason, having easy access to low-interest funds is a great way to get started.
HELOCs might be ideal for you if any of the following apply:
You are going through major life changes
Going through a divorce, marriage, or funeral can take its toll on your finances. A HELOC is an easy way to access some equity that can support you during the times you need it the most. They can be a financial lifeline at a time when all other funding options are limited or expensive.
Invest in real estate
Home equity loans give you complete flexibility to invest in anything you want including real estate. For example, a HELOC can be used to fund a renovation or to pay off debt with a higher interest rate. Rental property mortgages usually come with a higher interest rate, so getting a HELOC on your primary residence to pay off your mortgage on rental properties can work out much cheaper for you.
As long as you have enough money to cover any rental income gaps, a HELOC may be an ideal way to invest in real estate.
Streamline higher interest loans
If you have other loans to repay with higher interest rates, then one way to save money is to use a HELOC to pay off all of those loans in one lump sum. The advantage is that you only have one repayment to worry about and pay a much lower interest rate.
Unsecured loans like personal loan on the other hand can carry as much as a 36% interest rate.
You can get either variable or fixed interest rate HELOCs. Although HELOCs typically have a low-interest rate, if you have a high credit score, you can also get a fixed interest rate where you will be able to lock in part or all of your balance. This means that your rate remains the same during the draw period. In some cases, you can lock in an interest rate for up to 30 years so that there are no nasty surprises and you avoid the uncertainty of market fluctuations. Some lenders give you maximum flexibility and allow you to convert a fixed rate HELOC into a variable one, which is especially useful if the market becomes more favorable.
A HELOC essentially allows you to access much-needed funds for you to use at your discretion, without the chokehold of credit card interest rates. The credit replenishes every time you repay the balance, which means that you have a fairly stable source of funds to draw the money that you need, without having to go through the hassle of re-applying for credit.
How a HELOC from Figure works
One of the major disadvantages of traditional HELOCs is that applying for one can be a slow process. However, Figure has leveraged powerful blockchain technology that dramatically speeds up approval and verification. The blockchain is a digital database that works much like a ledger that doesn’t rely on a central authority to oversee the verification or approval of the records stored on the database.
Under the blockchain, transactional data is stored as blocks in multiple places and is verified by several nodes and network members. With this type of system, no record can be changed or modified without the agreement of the nodes on the network.
This sophisticated technology benefits Figure customers in the following ways:
Efficient processing times
Say goodbye to the days when you had to wait for weeks before you were able to get a decision on much-needed funds. Under the blockchain system, copies of documents can be sent digitally and immediately, meaning your application can be processed much more quickly.
Any changes on the blockchain system must be verified and checked by multiple nodes, which means that no bad actors can make unauthorized changes. The data on the system is immutable, meaning there will be a permanent record of everything transacted. The other advantage of this technology is that any record can be traced instantly, so you never have to worry about your data being erased.
Cuts out the middle man
There is no need to rely upon a third-party broker or financial institution to painstakingly check your identity, records, payment history, and other information. Instead, you can focus on unlocking your home's equity and locking in great rates.
Do you qualify?
Before you can apply for a HELOC, you must have equity in your home, as well as a strong credit score. The better your score, the more money you will be able to access. The amount of loan you are able to access will depend upon the amount of equity you have. Of course, you will need to have evidence of your income, employment, ability to repay, credit history, and a record of any existing debt.
You will also need to determine the value of your property as part of your application. We use an Automated Valuation Model (AVM), which considers public data records, recent sales of similar properties, and historical house price trends.
Figure out your HELOC
Figure makes it easy to get a HELOC and our application process is entirely online, so you can complete the process and get approval within minutes. If approved, you can access much-needed funds in days. Of course, it is worth noting that approval for a loan is subject to verification of income and employment.
To Figure out your HELOC, get started and fill out your application today.