Who Should Consider a Refinance and HELOC at the Same Time?

Homeowners considering getting a refinance and HELOC at the same time will encounter different loan structures than standard refinances. If you’re thinking about refinancing your house and getting a home equity line of credit, there are a few details you’ll need to consider. 

A HELOC is commonly known as a “piggyback” second mortgage. You can secure the second mortgage at the same time as your primary mortgage. Keep in mind that second mortgages provide borrowers with unique benefits. You’ll be able to borrow more money and avoid paying for private mortgage insurance. The additional funds available through a HELOC can help homeowners better qualify for their primary mortgage.

As a borrower, seeking a refinance and HELOC at the same time may help you if you find a terrific home that is otherwise out of your price range. However, before proceeding any further with a piggyback loan, ask yourself the following questions:

• Will you pay less? Review your finances and take a look at your mortgages. You should consider the cost of your primary mortgage, as well as the piggyback loan.

• Can you still refinance later? You already know that there is technically no limit to how many times you can undergo a mortgage refinance. However, you may run into difficulties refinancing later if you’ve already undergone a refinance and HELOC at the same time. These potential hurdles are introduced if you use a different mortgage lender for the later refinance. The good news is that if you first borrowed from a lender that you no longer want to work with, you can switch to American Financing for your refinance or HELOC.  

Still, you should consider your options from every angle before getting a HELOC with a refinance. In short, do your research. The process can overwhelm homeowners of every experience level, but it should make owning your home easier – not more difficult.

What is a home equity line of credit?

Getting a HELOC means that you can borrow cash against the value in your home. If you do a refinance and HELOC simultaneously, you can access the HELOC whenever you need it. Unlike a home equity loan, you will only need to make payments for the money you have withdrawn.

There are certain types of homeowners who are better positioned to take advantage of a HELOC. For example, if you want to borrow money over time instead of getting it in a lump sum, a HELOC might be right for you. Getting a line of credit also makes sense for people who are comfortable navigating variable interest rates. Additionally, in this type of home equity loan, you cannot borrow more than 85% of your home’s value.

How does a piggyback loan work?

Choosing to get a mortgage refinance and HELOC simultaneously is a decision to make once you have explored other loan options. In some cases, you may not be able to put 20% of the home’s value toward the down payment. In others, the down payment could decimate your savings, or perhaps home values may be rising to inaccessible price levels.

In these situations, a piggyback loan can be an appealing option. Unlike the Federal Housing Administration or Veteran Affairs loans programs, piggyback loans do not place certain restrictions on homeowners. The typical requirements can range from income, to location, to having to pay additional fees. 

If you’re curious to discuss or learn more about the practicality of getting a mortgage refinance and HELOC at the same time, get in touch. We can discuss all your available options and determine which options will best assist you in meeting your financial goals. In the meantime, here are the two most common types of piggyback loans.

• 80/10/10: Homeowners most commonly split the funds into these percentages. The 80% is your primary mortgage amount. Your HELOC is represented by the second number — 10%. Therefore, homeowners will make their down payment in the amount of that last 10%.

• 75/15/10: People may use this piggyback loan version if they want to finance a condo. The rationale is that the mortgage rates rise on condos if the mortgage’s loan-to-value exceeds 75%.

Like any loan, borrowers must meet specific requirements to secure a piggyback loan. If you get a mortgage refinance and HELOC at the same time, the borrower’s primary qualification is their ability to maintain a certain debt-to-income ratio. Your DTI should not exceed 28%. Lenders will review your ratio, particularly since you’re taking out two separate loans for a home. The mortgages will inevitably add to your debt, and lenders will want to have some assurances that you can meet all of your financial demands with your income.

Additional qualifications for when you refinance and HELOC at the same time

Having good credit is another necessary qualification for a piggyback loan. Lenders generally set the standard credit requirement at 680. However, despite these expectations, there are several critical advantages to pursuing a piggyback loan if you find that you are eligible for one.

• Smaller down payment

• Avoiding paying private mortgage insurance

• Side-stepping taking out a jumbo mortgage

• Lower interest rates

If you still have questions about your options or whether you qualify for a refinance and HELOC at the same time, schedule an appointment with us. Our salary-based mortgage consultants can help you by answering any of your remaining questions. We can also lay out the options or a combination of opportunities that align with your financial goals.

Meet your goals with an All in One Mortgage

If you’re interested in working with American Financing on a refinance or HELOC, we can help regardless of your original lender. We customize numerous loan programs to meet our clients’ needs because securing you with your dream loan is our priority. If you decide to wait to refinance, you can control your loan balance and interest fees with our All in One Mortgage. Homeowners can continue to access their cash, like when they get a refinance and HELOC at the same time. However, our All in One Mortgage offers greater flexibility than you’d have with a traditional HELOC.