It’s easy to want to call San Diego home, but as housing markets shift, you may find yourself wondering how realistic that is. While renting a house or an apartment is always a good first option, it certainly is not for everyone.
If you find yourself looking to move to San Diego or want to take the step from renting to having a house in this SoCal city, you’ll want to read more about home equity line of credit (HELOC) and what those might do to help you reach your goal.
What exactly is a HELOC rate, and how does it work? In simple terms, it’s an alternative second mortgage option for your home. Let’s talk about it.
Home Equity Lines of Credit
Okay, okay, what IS a HELOC rate, really? Let’s begin by going back to the basics.
A home equity line of credit (HELOC) rate, or the ability to get a home equity credit line is often seen as an alternative option to taking out a home equity loan or a mortgage. Most often, a home equity line of credit (HELOC) will act as a second mortgage that you can take out on your home.
These credit rates are based on your home equity. They take a percentage of your existing home equity to provide a revolving line of credit for you to use.
You can put this line of credit to finance home improvement projects or consolidate debt by paying off other high interest loans. Essentially, how you use your home equity line of credit (HELOC) is up to your personal discretion. You might even be able to borrow up to 95% of home's equity if you qualify!
Home Equity Line of Credit Approval
Most people who apply for a home equity line of credit (HELOC) are expected to meet some specific criteria that lenders provide. Loan details will vary like with any home loans, personal loans, or other loan programs you might be familiar with.
Some standard requirements when it comes to a home equity loan are a minimum credit score of 620, a debt-to-income ratio that is less than 40%, and you should have a home equity of at least 15%. Now, this will all depend on your lender, but you can also expect to borrow up to about 85% of what your home is worth (excluding what you still owe.)
Home equity line of credit (HELOC) rates will fluctuate, so there is inherent risk in going through this process and expecting your payment amount to stay the same as you repay the loan over time. Even if you get approved, you’ll want to make sure you are aware of average rates in your area and how they are expected to fluctuate.
HELOC Rates San Diego
As a home equity line of credit (HELOC) is a loan secured against your home equity, this is often a more flexible, less expensive way to take out a home loan. HELOC rates vary based on your equity as well as other considerations, like location.
The typical home equity line of credit (HELOC) ends up ranging from $200,000 to $500,000 and often only goes to 85% or 90% of the value of your home equity.
Based on your San Diego HELOC rate, your minimum monthly payment will vary, you'll have a different annual percentage rate, and you can expect that other major purchases will combine with these loans to reflect your personal credit history.
Finding a Home Equity Loan Rate
Pricing for any line of credit related to home equity varies so much from lender to lender and can also drastically shift to meet the needs of you, the borrower. On average, you can expect a home equity line of credit (HELOC) rate of about 9.36%, give or take. You can refer to the chart above for more specific estimates from lenders in San Diego, but these rates are based on something called a prime (prime lending rate) that commercial banks charge.
HELOC lenders will take that prime that a commercial bank is going to charge their customers with the best credit and add a margin above the prime rate.
How to Get Home Equity Loans
As we discussed a bit when talking about approval for a home equity line of credit (HELOC), most lenders for any type of loan are going to require you to own 15% of your home outright (that’s what having 15% equity means, really.)
Though we are most certainly not a financial advice site, I highly recommend getting multiple quotes and comparing things like the interest rate and repayment period before committing to any single option. This can protect you in the long run, and ensure that you are getting the best loan possible. Be prepared to show your credit score, debt-to-income ratio, and how much home equity you have when applying for your loan with the lender you’ve decided is best.
Preparing for Your Home Equity Line of Credit
You may be able to pay your monthly payments as automatic payments and should be prepared to budget your HELOC funds to account for your outstanding balance but also any unexpected expenses that may come up. These could look like maintenance fees, an origination fee, annual fees, an early closure fee, closing costs and so many more fees and adjustments that may follow your loan.
When it comes down to it, the process really isn’t all that scary and, well… if it helps you get a home to call your own in Sunny San Diego, it’ll be worth it!
Don't forget to look at your interest payments, your repayment period, and any annual or maintenance fees as you would with any major purchases or any time you need to borrow funds from a lender.