@Bryenne Korte I used to work as a personal banker a couple years ago before I got into the Insurance industry. I apologize if I am repeating anything, but I just read 4 or 5 posts then skipped to the bottom to post my reply.
As far as the HELOC goes, there a few different types, and you will need to decide which is the best fit for your situation.
There are Fixed and Variable rate HELOCS, the difference obviously being whether the Annual Percentage Rate (APR) will remain fixed, or will vary depending on the prime rate.
-Variable rate HELOCs will give you better rates, however they are subject to change over time
-Fixed rate HELOCs will have a higher APR to start, but they don't change over time.
-Many Variable Helocs will allow you to "Fix" a certain purchase, or upgrade to a fixed rate entirely (which is usually a higher rate than if you just go with a fixed to begin with)
-With rates likely on the rise, the sooner the better as far as to when you should start the process of obtaining your loan.
There are also HELOCS that have a draw period followed by a repayment period.
-In this case, you would be able to borrow and pay back at your leisure for the first, say 20 years. Then after that there is a 10 year repayment period that you will not be able to borrow from the credit line.
-Stay away from Balloon payments
-See if the bank you are going to offers an Initial Draw discount. (Sometimes they will give you a 0.25% rate reduction if you take a 25k or more initial draw from the HELOC. (Remember, you can borrow and pay back as you see fit, so you can pay back the 25k as soon as the contract allows you to, and still keep the rate discount)
-You will also want to think about Loan-to-Value (LTV) ratio. The higher the LTV, the higher your rate will be. For example if your house is worth 200k, you owe 100k, and you are applying for 50k on your new HELOC, your LTV would be the 100k (from your current mortgage) + 50k (what you're applying for) Divided by the appraised value of your home (in this example, 200k)
For this example your LTV would be 75%, which would get you a preferred rate at most institutions.
For rate purposes, it's best to stay under 80%, the higher you go over 80%, the higher your APR will be. Depending on the institution, they may not offer you any loan that puts your LTV over a certain percent. Some banks it's 90%, some will let you go to 100%, and very very few, if any will allow you to borrow anything over 100% LTV.
One last thing to consider is that whatever amount you choose to borrow will also be calculated into your Debt-to-income (DTI) ratio for this and future loans. This ratio is how much your monthly bills are Divided by your Monthly Income. Many banks will like to see sub 40% DTI for the most preferred rates.
Lastly, many people are not aware that you can challenge the decisions on loans. If the appraisal comes back lower than you expect, you can challenge them on that if you provide proof in the form of additional comps in the area (Ask your banker about this if it comes up, believe me they will do a lot for you if it seems like you are willing to walk away from the deal).
You can also request a lower APR, and some banks will give it to you if your banker pushes hard enough for you, OR if you have a comparison offer from a competing bank. It also helps to open a deposit account at the bank you get your HELOC at. They will usually offer you a relationship discount on your APR (sometimes between 0.1 or 0.25% APR) and if you carry large deposits in your checking or savings or money market account, the bank is way more likely to consider any demands you make for a reduction in your APR.
I hope this helps.
