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The Connection Between HELOCs and San Diego Home Prices

Home prices in the San Diego market are increasing, and it will affect many different elements of local real estate. From sales times to military housing, the price increase will have an effect (both good and bad) on the entire economy in our beautiful city.

One aspect of increased home value is that more HELOC (Home Equity Line Of Credit) loans will be available. This topic can be confusing, but San Diego Purchase Loans can help you understand all the important details.

What is HELOC?

It helps if we start by identifying HELOCs and helping you understand the basics of these programs. A HELOC is essentially a loan that is set up as a line of credit for a maximum allowable total. Rather than a lump-sum payout, it can be drawn in the amount you need, when you need it.

With traditional mortgages, you would borrow a specific amount of money from the bank to purchase or refinance a home. You might, for example, borrow $500,000 from the bank to purchase the house, then pay back the loan with monthly payments over a 15 or 30 year term.

With a HELOC, you basically secure a lender’s promise to advance up to $500,000 (or whatever agreed amount), which can be accessed in amounts of your choosing at a time that fits your needs. Basically you receive a line of credit which you can draw on by writing a check or using a specific card. Almost all HELOC are organized as second mortgages.

HELOCS have a draw period, a time when the borrower can use the line of credit, and a repayment period, when the money must be paid back. Draw periods can last up to ten years, and repayment periods can last up to twenty years.

HELOCs are useful for paying off necessary expenses, such as high credit card debt, home repairs, or eliminating student loans. With these loans, you only draw what you need and only pay interest on what you draw, making them appealing to many homeowners.

While useful, it’s important that you not use HELOCs to pay for unnecessary, such as vacations, expensive cars, or dining. Use HELOCs only for needs, not to enhance your lifestyle.

Home Value Increases Mean More HELOCs

The availability of HELOCs is directly dependent on home equity, which means when home values rise, and a homeowner’s equity increases alongside the value, there is more potential for HELOCs.

You can use home equity to pay for many expenses.

Let’s say you own a home worth $1 million, of which you have a 50% equity. (You own $500,0000, the bank owns $500,000.) If your home suddenly rises in value to $1.25 million, you now have higher ownership equity. (You own $750,000, the bank owns $500,000.) This means your home equity is higher, and because the availability of HELOCs are dependent on home equity, your opportunity to use this program increases.

Why Does this Matter in San Diego?

Why does all of this matter to the San Diego market? Because our area is one of the fastest-growing markets for home value. According to information released by S&P Case-Shiller Indices, home values in the San Diego market have increased 8.2% in a single year, making it one of the top markets for price increases. San Diego’s 8.2% annual increase made us #3 in the list, following Las Vegas, which had a 9% increase, and Seattle, which was by far the leader with a 12.9% increase.

This increase in home pricing will have an impact on San Diego as a whole, including our important military population. While the increase is great for current home owners, it could bring housing difficulty for military families based in the area. The San Diego Military Advisory Council estimates that the military brings 301,000 jobs to the area and contributes $19.6 billion to the local economy. This increase in home prices will inevitably effect military housing needs and could result in adjustments in compensation.

Another important effect for San Diego is that we will likely see an increase in the use of HELOCs. As home prices increase, equity is enhanced and the opportunity to use a HELOC grows. It’s very likely that in the near future, the number and the average amount on HELOCs will increase in our area, which will bring the need for reliable advice and guidance before using these programs.

San Diego Purchase Loans: Your Local HELOC Resource

The challenges of HELOCs stem from the past mortgage and real estate meltdowns. Banks are extremely conservative when it comes to lending, hoping to reduce risk and avoid over-lending, which many believe played a role in the financial crisis. Banks are limiting combined loan-to-value or making underwriting more difficult, often making HELOCs more difficult to secure.

Fortunately, San Diego Purchase Loans is offering HELOC terms that help you take advantage of your home’s equity and increased value.

Our program requires a minimum loan of $10,000 with a maximum loan amount based on the borrower’s qualifications. It’s for primary family homes and condos only. (No second or vacation homes, and no multi-unit buildings.)

To use a HELOC, the underwriting will need to meet FNMA standards and you will need to go through a full income and asset verifications, as well as a full appraisal for the home. There can be no interest-only or negative-amortization first mortgages, and the program is only available to US citizens and permanent resident aliens. You will also need a FICO score of 680.

If you qualify for our HELOC program, you will have a draw period of ten years, and interest-only payments are due during the draw period. The repayment period will last 20 years with an index prime rate. The interest rate will be the index plus a margin. The rate will be capped at 2% increases per year, with a lifetime cap of 18%. As an added bonus, there is no prepayment penalty.

If you want to learn more about the available HELOC program through San Diego Purchase Loans, contact our staff today.

We have the knowledge and experience to help you obtain the right HELOC for your needs, and we’ll be sure to explain all the details in clear language so you can make a fully informed decision!

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Chad Baker, CrossCountry Mortgage   
NMLS# 329451 | CCM NMLS# 3029