Understanding the No-Fee HELOC: What to Expect
Published May 10, 2022
Homeowners with specific financial needs may discover that they can benefit from getting a no-fee HELOC loan. Perhaps you’re someone who needs to get a line of credit, but you’re worried about the long-term effects of fees and ongoing costs. You might find certain lenders advertise covering some or all the traditional borrower fees. While the offers can save you money on the front-end, make sure to closely review your terms. You may need to repay the fees if you close your HELOC ahead of a specific date.
Many people plan to use a HELOC for home improvement projects or debt consolidation. Take some time to consider if you have similar financial needs. You might pursue a no-fee HELOC loan if you know that you won’t need to use the cash from your home’s equity all at once.
The bottom line: You should know how to properly utilize a line of credit. Speaking with a lender like American Financing can help you make sure there are no oversights that can hurt you.
What are the most common HELOC uses?
You can use a home equity line of credit for virtually any purpose. Still, make sure that you pick an important reason before tapping into home equity. Taking equity out of your home for a flashy car or a vacation may feel enjoyable in the moment, but using a no-fee HELOC for these purposes can make you financially vulnerable if you later require cash for an emergency.
Some of the most common and forward-thinking ways to use a HELOC are:
Home expenses: Many people prefer taking out a HELOC for home improvements for a few reasons. You can take out a large amount for a relatively low interest rate. You can also deduct the interest you pay on a HELOC if you use it to buy, build, or improve your home.
College costs: You can use a no-fee HELOC to fund your child’s education. Make sure to exhaust other grants and federal student loans first. Your house secures your HELOC. Therefore, you can lose your home if you default.
Debt consolidation: Some people can save interest by using a HELOC to pay down high-interest debt. These types of situations may involve paying off specific credit card bills or personal loans.
One of the attractive features for securing a HELOC is only repaying the money that you use. However, even if you avoid initial fees and don’t use it all, you will still pay for the interest. Make sure you’re mapping out how you will effectively use the no-fee HELOC funds before tapping into your home’s equity.
How a HELOC can help manage specific debts
Since HELOCs can help manage different types of debts, it’s easy to get comfortable with using them. However, all lenders will still put forth their own specific qualifications for HELOCs. Some of the standard qualifications across-the-board include are:
Credit score of at least 620
DTI ratio no higher than 40%
History of meeting monthly payment deadlines
Proven ability to repay a line of credit
Appraisal showing at least 15% home equity
If you’re not quite there yet in one or more of these areas, it’s OK. If you can delay your home improvement project, focus on building your equity or improving your credit score before getting a no-fee HELOC. Some people may find that other options make more sense for them. If you’re trying to manage your debts, your prospective lender may recommend any of the following.
Home equity loan: These loans are closer to conventional loans than HELOCs. You will also have a fixed rate instead of a HELOC’s adjustable, lower rate. Although some prefer the predictability of a fixed rate, you can use your funds more flexibly if you get a HELOC rather than borrowing a lump sum.
Cash-out refinance: Homeowners looking to borrow large sums of money will generally take a cash-out refinance. Consider the potential for high closing costs when taking out this type of refinance loan.
Personal loan: You can avoid using your home as collateral with a personal loan. But a no-fee HELOC is still preferable in other ways because they offer lower interest rates.
The type of loan option you choose directly relates to your unique financial situation. If you have questions about what makes sense for you, get in touch. Speaking with our mortgage consultant team can help you eliminate the uncertainty and any guesswork about your loan options.
How to apply for a HELOC
Applying for a HELOC can vary in steps and duration. The general steps that you will take when you fill out an application are:
Reviewing your credit score. Before lenders check your score, you can request a free credit report to see your current eligibility for a no-fee HELOC.
Collecting your important documents. Make sure to gather records of your income, employment, and any debts. These factors will indicate your ability to make payments each month on time.
Submitting an application. If you schedule an appointment with us, our consultants will assist you in completing your paperwork and answer any of your final questions.
Finalizing the verification process. After your lender reviews your paperwork, they will ask you to verify your employment. They may also set a time to appraise your home.
Closing on the loan. Once you review the HELOC terms, sign the loan agreement to access your new funds.
Prepare for a no-fee HELOC today
You can see that there are many reasons to get a HELOC. Regardless of whether you need to pay fees up front, you should thoroughly review all term details with your lender. Knowing the finer details will help you gain long-term insight and eliminate any surprises.
Even though HELOC fees are commonplace, you deserve to know what to expect when you use your home’s equity. American Financing will take the time to answer your questions and offer full transparency about what you can expect from any HELOC term.