Home Equity Line Of Credit In California Versus Cash-Out Refinance

This article is about Home Equity Line Of Credit In California Versus Cash-Out Refinance

Home Equity Line Of Credit In California:

• California is the largest state in the nation
• California also has one of the highest home values in the United States
• Average home prices in the state of California is $595,700 when the national average home price in the U.S. is $292,500
• Home values in California have been increasing since 2012
• Today, mortgage rates are the highest it has been since 2009 and is expected to go even higher
• With high mortgage rates, the demand for housing in California remains strong
• There is more demand for homes throughout the state of California than inventory

California Housing Market

Many California homebuyers who purchased their California homes in 2010 and thereafter:

• Many purchased their California homes at the bottom of the housing market in California
• Many California homebuyers who purchased their California homes with 3.5% down payment FHA Loans or 5% down payment Conventional Loans have seen their homes appreciate by more than 20% plus percent
• Some areas of California have homes appreciated as much as 50% depending on the county
• California homeowners who have equity in their California homes can qualify for a Home Equity Line of Credit, also known as HELOC

However, many homeowners do not realize that HELOC is much tougher to qualify than a California cash-out refinance mortgage loan.

How Does Home Equity Line Of Credit In California Work?

A home equity line of credit, HELOC, is a second mortgage loan against a home and works much like a secured credit card.

• A bank issues a home equity line of credit based on the loan to value of the home
• Homeowners need equity in their home in order to qualify for a Home Equity Line of Credit
• A Home Equity Line of Credit will allow homeowners to borrow up to a certain credit limit for whatever reason
• Homeowners do not need permission from the bank to tap into their home equity line of credit

Banks will normally issue checks homeowners can use to draw against their Home Equity Line of Credit.

Advantages Of Home Equity Line Of Credit In California

There are many benefits of having a home equity line of credit in California against their home.

Here are some benefits:

• Homeowners only pay mortgage interest only on the dollar amount drawn and not the whole line of credit
• So whatever dollar amount consumers do not draw on, they do not pay mortgage interest
• Low annual fees to maintain the home equity line of credit account – Normally usually less than $200 depending on the bank
• Home Equity Line of Credit can be used to avoid paying mortgage insurance on the home if home buyer get a piggyback 80-10-10

80% loan to value first mortgage, 10% down payment, and use the rest with the home equity line of credit.

First Mortgage With Piggy-Back Second Mortgage

Homeowners can utilize the home equity line of credit to have the first mortgage as a conforming loan instead of a jumbo mortgage by using it to finance the amount above the conforming loan limits:

• Home Equity Line of Credit can be used as potential reserve funds in the event of major repairs needed or in the event of a financial emergency

How Do I Qualify For A Home Equity Line of Credit In California?

Most banks and credit unions offer Home Equity Line of Credit for homeowners with equity.

• Most banks require mortgage loan borrowers a credit score of at least 700
• Banks underwrite home equity line of credit mortgage loans the same as they would a first mortgage home loan
• They will need a mortgage application, run credit, review credit history, payment history, debt to income ratios, and order an appraisal
• Depending on the bank that issues the home equity line of credit, most banks will issue a home equity line of credit up to 90% loan to value

There are banks that will go higher.

Cash-Out Refinance Mortgage Versus HELOC

It is much easier to qualify for a cash-out refinance mortgage than it is for a Home Equity Line Of Credit.

Here is the comparison in qualifying for Cash-Out Refinance Mortgage Versus HELOC:

HELOC require 700 credit scores:

• FHA requires 580 credit scores and maximum DTI is up to 56.9%
• VA has no credit score or debt to income ratio requirements
• Conventional Loans require 620 credit scores and debt to income ratios are capped at 50%

Maximum loan to value on HELOC is 90%:

• FHA allows up to 85% LTV on cash-out refinance mortgages
• VA allows up to 100% LTV on cash-out refinance mortgages
• Conforming Loans allow up to 80% LTV

There are pros and cons with cash-out refinance mortgages versus Home Equity Line Of Credit In California. Please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.