@Brooklyn_Wiseguy wrote:
Hi,
I’m glad I found this board! I searched online but found a lot of conflicting information.
My wife and I own a home with a remaining mortgage balance of $267K, and the current estimated value is around $445K. My Chapter 7 bankruptcy recently dropped off all my credit reports (WOOHOO!), and my FICO 8 scores are now 819, 841, and 850. My wife’s scores are all 800+. We have no auto loans and about $5K in credit card debt.
We’re looking to borrow up to $80K—around $20K for a car, some for vacations, home repairs, a bathroom renovation, and the rest for potential future expenses.
From my understanding:
• A home equity loan (HE) is a lump sum where we start paying interest on the full $80K immediately.
• A home equity line of credit (HELOC) allows us to withdraw funds as needed, and we only pay interest on the amount we use.
• Is this correct?
I have a few questions:
1. What are the pros and cons of a home equity loan vs. a HELOC?
2. What should we expect when applying for either? Are there fees (e.g., processing, appraisal, closing costs, etc.)?
3. How long does the process typically take—from application to approval to receiving the funds?
4. Any tips or important things to know for first-time HE/HELOC applicants?
Much appreciated!
Your understandings are correct.
Typically with a loan, the rate is set and a HELOC is typically adjustable like a Credit Card...it's tied to prime and will adjust over time up or down
Yes, both have fees, closing costs, notary requirements and may also include an in-person home appraisal. If so, be prepared...don't just have them come out, walk around and give a number. When my appraiser came, I had done the research and was able to provide comps in the neighborhood and explained the differences in my property to theirs and I had receipts backing up improvements I had made that increased the value. Yes, that is actually their job to do the leg work...though I had applied for an amount based on what I felt the home was worth against what I owed so to ensure I was approved for what I wanted, I made sure the appraiser had all the same info I did. I wouldn't leave that to chance...not a guarantee but you know more about your community than your appraiser likely does. Be prepared.
My process took about 40 days from application to signature then account opened. I had everything in order, I was prepared and continually followed up to make sure everything was in their hands as they moved through the process.
Remember that a HELOC specifically has a Draw Period. Most are 10 years, some offer 20. The draw period is when the HELOC funds can be pulled from the credit line to use. At the end of the draw period...whether you've used all the money or not, the ability to draw is closed and you are simply making payments at that point. You could get a 10 year draw period and a 20 year payment period and if memory serves me correct, the 20 year payment period is on top of the draw term...so 10 + 20 = 30 meaning it's a 30 year committment. This doesn't mean during the first 10 years, your payment free....you make payments as soon as you draw down on the credit line. Also, some offer the ability to transfer funds to your checking account, others provide you physical checks and some offer you a Visa/Mastercard with a CL tied to your loan amount making purchases easy.
