Blog 6
Lisa Li
Principal
Licensed Broker
Phone: 617-335-4829
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Proficient in self-housing and rental housing in all good school districts and high-end districts in the Greater Boston area. If you need to buy or sell a house, please contact me.
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All blogs on this site are original, please do not plagiarize, all opinions and experiences are personal opinions, and are for reference only.
Where there is housing, there is money: Home Equity Line of Credit (HELOC)
Today, some netizens asked what HELOC is. It should be because I mentioned in my article that I used HELOC to buy a house and repair it. Many old landlords and old homeowners must know what HELOC is, but I think I didn’t know the purpose of HELOC until I arrived at the third house, so there must be many people who don’t know what HELOC can be used for. Let's talk about it today. In fact, I started the group with the intention of discussing, but after writing a few articles, everyone responded well, haha, it turned into me writing textbooks. Please take a look, and I still hope to correct you more, because what I wrote is based on my own experience and understanding, and I have not verified it in particular. Although I know that it should be correct in general, there may be small errors in the details, please everyone. You have to check it yourself.
HELOC, how should I say it? It’s like a small emergency treasury mortgaged by a house, because its biggest advantage is that once the quota is approved, you don’t have to use it, but it’s like an emergency fund. If you don't use it, naturally there will be no cost. Moreover, even if you borrow it, you only need to repay the interest every month for the first 10 years, and you don't need to repay the principal. When you need money, especially when you need a large amount of money, you can use HELOC as cash. Generally, HELOC has more than 100,000 yuan, which is much more than the credit card limit, but the interest is very low, which is similar to ordinary loans. . So, in general, people use HELOCs primarily to renovate their homes, or to pay for college. This artifact is especially suitable for people with little bank deposits. A HELOC of more than 100,000 is like a reassurance. In case of emergency money, you don’t have to be desperate. You can calmly take out the HELOC checkbook and write a big check with a wave of your hand. .
Therefore, with HELOC, we don’t need to have too many deposits, and we can pay more down payment with the money in hand, and then approve HELOC as a backup treasury. How is the amount of HELOC calculated? Generally speaking, when you apply, the bank will come to evaluate the house. If you just bought it, it is basically the price of the house; if it has been renovated, the value will increase; A house should appreciate in value. In short, the bank will estimate the market price. The upper limit of the loanable amount of each bank is different, some are 80% of the market price, some are 90%, and then subtract your primary mortgage, which is the HELOC amount.
Let me use my example as an example: At that time, the house was 785,000, and Mortgage could only borrow 390,000 (using W2 income as the calculation index), so the down payment of our house was 395,000. After buying the house, we used the house as a mortgage to apply for a quota of 235,000 through HELOC. If I don't need to use money, the more than 200,000 yuan is like my deposit. Once I need to use money, I can withdraw it at any time, as long as it does not exceed the upper limit. If you have read my side story, you should have seen that I bought a house in the second year for Condo Conversion and renovation, and I bought it with cash. The cash was HELOC plus some of my own deposits. At that time, the HELOC was 2.75% interest , I only need to repay the interest every month, not the principal. After another year, when all the projects are sold and all the money is returned, the HELOC will be paid off, and it will be returned to my spare treasury.
And the HELOC of my other house is another situation. I didn't put a lot of down payment when I bought the house. If I didn't do the renovation, I wouldn't be able to get a lot of HELOC immediately. But after I renovated, the valuation of the house increased a lot. I used HELOC to realize this value increase and loaned out 400,000 HELOC, which means that I can call this 400,000 cash at any time, and I will use it for my other projects. A big renovation project is underway.
Did you find out? I've been using words like "emergency" and "standby" to describe the HELOC because that's what it does. Some Americans dare not borrow HELOC, just like they dare not use credit cards. If someone has no self-control and thinks that HELOC is cash, and spends it on a car or vacation, it will be bad, and it is equivalent to backing themselves. A pile of debt, if not paid out, the house will be taken away by the bank.
Therefore, for me, HELOC means that the house gives me a small safe and spare emergency fund. I usually borrow it for my projects or cash purchases, and I will return it immediately after the project funds are returned. Opportunity to use in the next project. How do you use HELOC? Welcome to share!