Specialty Loans: HELOCs and More
Specialty loans cover borrowing needs that standard purchase and refinance loans do not. The best known is the HELOC, a revolving line of credit secured by your home, but the category also includes home equity loans, buy-before-you-sell programs, fix-and-flip loans and hard money. Each trades flexibility for cost or risk.
Key Takeaways
- A HELOC is a revolving, variable-rate line secured by your home, usually in second-lien position, with a draw period (commonly 10 years) followed by repayment.
- A home equity loan is typically a lump sum with fixed payments; compare it with a HELOC based on how you will use the money.
- Investor and bridge products such as fix-and-flip and hard money loans are short-term and cost more.
- Tax treatment of interest depends on how you use the funds. Ask a tax professional.
What is a HELOC?
A home equity line of credit lets you borrow against your equity as needed, up to a limit, and pay interest on what you use. The rate is variable. During the draw period you can borrow and repay; afterward, you repay what you owe. Start with what is a HELOC and how does it work, then see:
- HELOC vs. home equity loan: line of credit versus lump sum.
- How much you can borrow: equity and combined loan-to-value.
- Draw period vs. repayment period: how payments change.
- How the rate is set: variable rate basics.
- Closing costs and credit score needed.
- Is HELOC interest tax deductible? Ask a tax professional.
What other equity and income-based options exist?
- Wealth Builder HELOC: a first-lien, variable-rate line of credit that uses your home’s equity; see how it compares to a cash-out refinance.
- Non-QM HELOC: for borrowers who need alternative income documentation, including self-employed borrowers.
The HELOC adds a payment and a lien, so understand how it affects your DTI. If you plan to borrow against equity to refinance your primary loan, compare with cash-out refinance.
What if I need to buy before selling?
Buy Before You Sell programs help homeowners purchase a new home before the current one sells. Read who qualifies and what happens if your home does not sell in time.
What about investor and short-term loans?
- Fix and flip loans: short-term financing for purchase and renovation, often based on after-repair value; see what ARV is.
- Hard money loans: asset-based, short-term loans with fast closings and higher cost; see how they differ from conventional or non-QM.
How do I choose?
Match the product to the purpose. Ongoing or uncertain costs suit a line of credit. A one-time, known expense may suit a fixed lump sum. Short-term investor projects use short-term products. Compare these with the main purchase loans in Types of Home Loans and Conventional Loans, and the full library at specialty loans. Homeowners 62 and older may also consider reverse mortgages.
At Lendia, we compare equity options
At Lendia, we compare options from multiple lenders and help you see the true cost of each. Contact us or get a rate quote now.
Frequently Asked Questions
Is a HELOC a second mortgage?
Typically yes, since it sits behind your first mortgage in lien position.
Is the HELOC rate fixed?
Typically variable, so your payment can change. See how the rate is set in the HELOC guides above.
What happens after the draw period?
You repay what you owe over a repayment period and can no longer draw.
Can I use a HELOC to buy a home?
In some cases. See using a HELOC to buy a home.
Are hard money loans a good idea?
They suit short-term, time-sensitive investor deals. The cost is higher, so have an exit plan. Rates and terms depend on your situation; approval requires qualification.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.