You’ve had your home for some time or recently purchased it at a steep discount. Either way, you’ve built up a significant amount of home equity and used a home equity line of credit (HELOC) to convert some of it into cash. But you’re wondering if you can take out a second HELOC to pull out untapped equity.
Read on to learn more about second HELOCs, how they work and where to get the best deal on this home equity loan product.
What is Considered a Second HELOC?
A HELOC is a flexible line of credit that acts as a second mortgage and uses your current home as collateral. You can convert up to 85 percent of your home equity into a pool of cash accessible on an as-needed basis. It operates like a credit card – you can make payments to free up the funds for repeated use.
Most HELOCs come with a draw period of up to 10 years. You’re permitted to make withdrawals during this time frame, and you’ll also make interest-only payments on the amount you borrow. Once the draw period ends, you’ll make principal and interest payments, which will likely fluctuate since the interest rate on HELOCs is typically variable.
If you currently have a HELOC and take out another one, it’s referred to as a second HELOC.
Is It Possible to Get 2 HELOCs on The Same Property?
There’s no legal limit on the number of HELOCs you can have on a single property. If you meet the lender’s eligibility criteria and have a sufficient amount of equity in your home, you’re permitted to take out two or more HELOCs. Generally, lenders will allow you to tap into up to 85 percent of your home equity using this product.
Do You Need to Use the Same Lender for the Second HELOC?
No, you’re not obligated to use the same lender to get a second HELOC on your property. However, it’s worthwhile to shop around with multiple lenders, including online lenders, traditional banks and credit unions, to find the best deal.
Can You Pay for a HELOC using another HELOC?
Yes, you’re allowed to use one HELOC to pay for another one if the lender doesn’t place restrictions on how the funds can be used.
Things You Need to Consider When Getting 2 HELOCs on The Same Property
Your Credit Score
Ideally, you should have a credit score of 620 or higher to take out a second HELOC. Be mindful that the most competitive loan terms and lowest HELOC rates are generally reserved for borrowers with higher credit scores and a reasonable debt-to-income ratio. So it’s worth improving your credit health before applying if it’s not up to par.
The Amount of Equity on Your Property
Most lenders want you to have at least 15 percent equity in your home. If your home equity is significantly higher, you’ll likely qualify for a more generous HELOC.
As mentioned above, the loan-to-value limit on most HELOCs is 85 percent. This means you must preserve 15 percent of your home’s equity. However, some lenders with no LTV ratio limitations allow borrowers to cash out 100 percent of their home’s value minus the outstanding balance on your existing mortgage.
The Interest Rate on a Second Mortgage
A second HELOC means an added expense to your monthly budget. So, it’s vital to ensure the interest rate on your second mortgage is as low as you can possibly qualify for to keep borrowing costs down.
The Total Value of the 2 HELOCs
It’s equally important to run the number or compute the total monthly payments for the two HELOCs. They should fit comfortably into your spending plan and leave wiggle room for fluctuations that will likely happen in the future since they come with a variable rate.
Where to Get a HELOC
HELOCs are available through an assortment of lenders. Consider Spring EQ, an A+ rated BBB-accredited lender, if you’re looking for a mortgage provider that lets you access even more of your equity.
Unlike most traditional lenders and credit unions, Spring EQs HELOCs allow you to convert up to 90 percent of your home equity into cash and get funded in as soon as 21 days. Even better, you could be eligible for up to $500,000 and choose from a flexible term between five and 30 years.
Once your HELOC is approved and funded, you can use the funds however you see fit. This means you can make costly home repairs or upgrades, invest in another property or pay for some other big-ticket purchase.
When you’re ready to make your home equity work harder for you, take the first step toward getting a HELOC. Submit an online inquiry to get started with the application process or learn more about other types of loans that may be available to you.