Home Equity Loans

HELOAN

Leverage your home equity for a lump sum of cash

Owning a home is not merely having a place to live; your home is an important—and valuable—investment. In light of this, it’s nice to know that you have various financial options related to that investment. You can put to use what you’ve paid into your home—and take advantage of the increase in value since you bought it—to make other current expenses easier to manage.

HELOANs—Home Equity Loans—can be a great way to get the money you need for home improvements, debt consolidation or other expenses. These loans are typically offered at lower interest rates than other forms of consumer loans because they are secured by your home, just like your primary mortgage.

Let’s Get Your Loan Started

Get Started

HELOAN BENEFITS

Easier to qualify for than many
other types of loans
Lower borrowing costs
Longer terms
Fixed interest rates
No restrictions on how you can use
the funds
Immediate access to the funds in
a lump sum
Fixed monthly payments

What is a HELOAN?

A home equity loan is a second mortgage on your home the amount of which is determined by the appraised value of your home and the amount of equity you have in it. Equity is the difference between how much you owe on your home and its current market value. For example, if you have a home valued at $300,000 with a $180,000 balance on your mortgage, you have $120,000 in home equity.

There are two types of home equity loans. Fixed-rate home equity loans have the same name: home equity loans. They are commonly known as HELOANs. A HELOAN provides the borrower with a single, lump-sum payment that will be paid back in fixed installments over a specific time period. See the chart below to differentiate between a HELOAN and a HELOC (home equity line of credit).

Feature	HELOAN	HELOC
General Description	Fixed-rate loan, using your home as collateral	Variable-rate loan, using your home as collateral
Better for	Larger, clear-cut, one-time expenses	Ongoing, undefined expenses or projects
Availability of Funds	—At closing (or shortly thereafter) —Distributed as one-time, lump sum	—At closing (or shortly thereafter) —Paid out as needed during draw period
Repayment	—Begins upon closing (with interest) —Based on fixed schedule —Payments do not change	—During draw period, minimum payments required (or to replenish funds) —After draw period, repayment of unpaid balance begins promptly (with interest)
Precautions	—Your home is collateral (Vulnerable to foreclosure in event of default) —Tax-deductibility only for home improvements	—Your home is collateral (Vulnerable to foreclosure in event of default) —Tax-deductibility only for home improvements —Rising interest rates

Borrowers designate funds from HELOANs for a variety of purposes such as either planned—or unforeseen—expenses, debt reduction or consolidation, paying down student loans or other needs.

Alternatives to a HELOAN could include obtaining a personal loan or a credit card, but these options might not provide the most affordable terms and conditions. Credit cards and most personal loans have high interest rates because they don’t allow for any collateral as security for a loan.

Thus, a HELOAN can be a great way to tap into the equity you’ve built up in your home to use as cash, particularly if you invest that cash in home renovations that increase the value of your home.

How to Qualify for a HELOAN

To find out if a HELOAN is an appropriate option for reaching your financial goals, contact us at Compass Mortgage! For some of the basics, we’ve outlined the steps and documentation you’ll need in order to familiarize yourself with what is involved.

First Steps toward Obtaining Your HELOAN

YOUR part is to:

Ask any questions you have about home equity loans
Share basic information about your current finances

OUR role is to:

Obtain your credit report
Determine your home’s present value
Establish how much equity you have in your current home
Calculate how much you can potentially borrow
Discuss loan options, possible term lengths and interest rates for which you qualify
Request needed documents for underwriting

We’re with you through each step leading to closing, where you can begin to make the most of your home’s equity with the cash you receive.

HELOAN Requirements

Here are the standard requirements to qualify for a HELOAN. If you have any questions about these stipulations, we’re here to help!

Equity: 15-20% is the usual expectation. (Remember: Equity is the difference between how much you owe on your mortgage loan and your home’s current appraised value.)
Loan-to-Value Ratio (LTV): We’ll calculate this based on how much you owe on your current mortgage compared with your home’s value. (Substantial equity can offer greater borrowing potential.)
Credit Score: 620 or higher qualifies. (Requirements vary.)
Debt-to-Income Ratio (DTI): DTI measures the percentage of a borrower’s income that goes toward paying current debts. (You’ll need to provide all relevant documents.)
Employment Verification and History: This refers to your current and past employment. (You’ll need to furnish documentation for positions you’ve held or now hold, as well as proof of consistent, ongoing income.)
Reliable Payment History: A track record of on-time payments is key to qualifying for a home equity loan. (Written proof is especially helpful in this regard.)

HELOAN FAQs

Making the most of your home equity and achieving your financial goals make a big impact on your life. It’s OK to have questions! We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.

What is the difference between a HELOAN and a HELOC?

A HELOAN is similar to a traditional mortgage. It’s a loan rather than a line of credit. You borrow one specific amount, receive that amount in a lump sum and make regular payments during a fixed repayment period.

A HELOC differs in that it acts like a credit card, meaning you can borrow, pay back and borrow again during the draw period. (Read more in the HELOC link.)

For a HELOAN, you apply for the total amount of financing you need. This amount will depend on how much equity you have in your home, and you will receive it as one lump sum. During the agreed-upon repayment period, you pay a fixed monthly amount that goes both toward interest and the loan principal, much like a mortgage.

Both HELOANs and HELOCs offer lower interest rates than many personal loans because your home is used as collateral.

How can I use the cash from a HELOAN?

In most cases, a HELOAN is flexible and can be used for any expenses you choose.

It’s common to get a home equity loan to cover expenses such as student loans, home renovations, start-up business costs, emergencies like medical bills or other purchases for which you might obtain a personal loan, such as buying a car.

Because its interest rates are lower, a HELOAN is also great for consolidating and paying down high-interest debt like what is owed on credit cards.

How do I access the funds from a HELOAN, and when do I need to repay them?

Once funded, you’ll quickly have access to your HELOAN funds. Typically, you can receive them by check or by transferring the money to your checking account.

You’ll need to start making payments on your HELOAN right after the loan closes, and you’ll usually have a fixed repayment schedule. The length of time you have to repay your loan will depend on the terms and conditions of your loan agreement.

How do home equity loan interest rates compare to other financing like personal loans?

Home equity loan interest rates are lower than other personal loans or credit cards. This is possible because you’re borrowing against an asset—your home—that helps to secure the loan.

Your home is valuable collateral that the lender can rely on if you can’t repay your HELOAN. This makes lending the money less of a risk for the lender so that financing is more readily available.

That being the case, you should think carefully about any concerns you have regarding repayment of a home equity loan because if you can’t make payments, your home is on the line for the balance you owe.

What type of income is needed to qualify for a HELOAN?

Get in touch with a Compass Mortgage loan officer! Along with helping you determine the amount of equity you have to work with, your Compass loan officer will help you evaluate your income as well as the other components of your financial profile in order to help guide you toward a workable solution for qualifying.