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Home Equity Line of Credit (HELOC) Loans & Mortgage Tips for the Self-Employed

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What Is A HELOC?

HELOC is an initialism that stands for Home Equity Line Of Credit. It is one type of home equity loan.

A home equity loan allows borrowers to take out a loan using their home’s equity as credit. The home’s current market value and the total amount left to pay on your mortgage are used to calculate how much you can borrow. This loan has a fixed timeline to be repaid.

Difference Between HELOC and Home Equity Loan

HELOC loans are actually one of two types of home equity loans. The first type is a home equity line of credit or “HELOC” loan. The second is a fixed-rate equity loan. It is important to note that cash-out refinancing is not the same as a HELOC loan.

Should I Choose A HELOC or Fixed Rate Home Equity Loan?

  • A HELOC loan is a variable interest rate loan, which means the amount you pay each month can change. Home equity loan rates are calculated based on the financial index, which varies over time, and a fixed margin, which will stay the same over the course of your loan. HELOC loans offer a home equity line of credit with a closed-end date. 
  • Fixed-rate home equity loans, on the other hand, are paid out as one lump sum. They have a fixed interest rate that is locked in over the course of your loan. Borrowers often prefer these fixed monthly payments for ease of mind when paying bills each month. However, if the financial index dips during the course of your loan, you might end up missing out on a lower variable rate. A fixed-rate loan will also have smaller payments the longer the loan term, but it will cost more as you pay interest over time. 

In order to qualify for a fixed-rate equity loan, you usually have to borrow a minimum amount of money. You must also be eligible with an adequate credit score and good loan history.

Why Choose a HELOC?

HELOC loans have a few distinct advantages that make them particularly attractive to self-employed borrowers. Most notably, a HELOC loan is a secured loan type. This means that your borrowing rate and loan term are calculated and approved with collateral taken into consideration. In this case, the collateral is your home itself, similar to a mortgage loan. This secured loan means self-employed or unemployed borrowers are more likely to be approved and approved with favorable loan terms.

Starting your own business can be a considerable challenge. Often the first year or two of business doesn’t turn over much, if any, profit. One way to ease the financial strain and give your growing company the time it needs to flourish is to take out a HELOC loan. 

As a small business owner, you have enough on your plate. Take the stress of paying bills and managing personal finances off your shoulders during the fragile first years, and allow yourself to focus on making your company the best it can be. The secondary financial support and cash flow from a HELOC loan can help bridge the gap between expenses and revenue as your business blossoms.

How to Qualify for a HELOC

Borrowers can qualify for a home equity loan, including a HELOC loan, by meeting a series of qualifying criteria. The most essential factor in determining loan eligibility is your home equity. Equity is the current market value of your home minus the amount you have left to pay on your mortgage. The higher your equity, the more likely you are to be approved. Other factors such as debt-to-income ratio, taxable income, loan-to-value ratio, tax returns, down payment, and credit score will also be used to determine eligibility.

How to Get a HELOC When You’re Self-Employed

HELOC loans are often particularly attractive to self-employed loan applicants who may have difficulty qualifying for a traditional loan. If you are a self-employed individual struggling to find a loan or financing option that is right for you, HELOC loans could be the perfect solution. 

Because this type of loan uses the equity of your house as collateral, it is considered a secured loan. Secured loans are easier for self-employed homeowners to qualify for than personal loans or other unsecured loans. You will still need to provide proof of monthly income and meet minimum requirements, but HELOC loans are much more likely to be approved for self-employed people than conventional loans.

Let Excel FCU Help You

Interested in taking out a home equity line of credit loan? We offer some of the best home equity loan terms out there. Reach out today, and an Excel FCU expert will walk you through the process.

We’re happy to partner with small business owners to help you weather the storms of launching a new company and come out on top. Our HELOC and other home equity loan options offer vital support to self-employed borrowers and small business owners throughout the area.

There is no firm debt-to-income ratio required to qualify for a home equity loan. Lenders generally look for borrowers with a debt-to-income ratio that is lower than 40%. This can be achieved even with self-employment income. However, this is determined on a case-by-case basis and can vary. Reach out to Excel Federal Credit Union today to learn if you qualify for a home equity loan.

There are as many reasons to take out a home equity loan as there are borrowers. Some common reasons include:

  • Debt consolidation
  • Education expenses
  • Home remodeling and home improvements
  • Moving costs

One of the big reasons HELOC loans are popular with self-employed loan applicants is that they can be used to help support you when you get stabilized on your new, independent venture. Not having a W2 doesn’t have to hold you back from life.

In general, closing costs are included in calculating your home’s equity. They can include:

  • Application fees
  • Property appraisal costs
  • Title fees 
  • Lawyer fees 
  • Property insurance
  • Filing fees

Closing costs can be a not-insubstantial portion of your home equity loan, often several thousand dollars.

Excel Federal Credit Union offers no closing costs home equity loans to our borrowers. As long as you keep your account current and open for a set amount of time, we will happily waive your closing cost fees - often saving you thousands of dollars. Your loan officer can talk you through how to qualify for your no closing cost loan.

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