How to Apply for an All-in-One First Lien HELOC
Are you ready to buy your first self-owned home? Perhaps the more important question is, are you prepared to finance a new home?
Wanting a new home and qualifying for the needed financing are two different matters. So you will need to complete some paperwork before getting very far into your home search.But do you know that qualifying for your first mortgage — in other words, your “first lien” — means you probably will also qualify for a first-lien HELOC loan? Are you asking yourself, “What is a HELOC loan, and why would I want one? If so, stay tuned as we go through the steps from qualifying for a first-lien HELOC application process to closing on a home.
Achieve financial freedom with a
1st Lien HELOC
Qualifying for a First-Lien HELOC Application
A first-lien HELOC (home equity line of credit) can be a convenient way to finance a new home. But first, you need to qualify for a HELOC, which is roughly equivalent to qualifying for a mortgage. Equity, income, and credit scores have roles in both.Because HELOCs are not government loans, as are the overwhelming majority of today’s mortgages, banks can be more flexible with HELOC applicants than government programs and agencies like Fannie Mae, Freddie Mac, FHA, USDA, or VA might be.
Still, you might not qualify for a first HELOC loan if your credit score is less than 500. A score of at least 620 is recommended, and one over 700 will let you enjoy the best rates and terms.
It is advisable to begin the loan application process with an estimate of how much you will need to borrow. Consider monthly payments, moving costs, necessary home improvements, etc.
What Is an All-in-One First-Lien HELOC?
What is a first-lien HELOC, and how does it benefit homebuyers? There are a couple of different ways.
When part of an “all-in-one mortgage,” a first-lien HELOC allows a homeowner to pay down more interest in the short-term while having access to any accrued equity. A savvy first-time borrower might choose this option.
Another option is to refinance. Since a first-lien HELOC is a credit line and mortgage in one, it can replace your existing mortgage.
It also allows you to withdraw cash (as a form of home equity loan) for the loan’s duration without needing to refinance.
At the same time, insightful and well-organized borrowers can speed up the loan pay-off. They can apply direct deposits to the loan’s principal, reducing the mortgage interest and term length.
In other words, payments go toward the mortgage principal and interest yet can still be withdrawn.
Applying With an Approved Lender
At the beginning of the first-lien HELOC loan application process, you will select a lender and notify them of your intention to apply for a first-lien HELOC loan. You can do this by pre-qualifying for the loan.
Once you receive satisfactory loan approval, if a loan officer doesn’t invite you to discuss the loan and its terms, it would be a good idea to set up an appointment.
1
What is the introductory rate?
Find out if there is a low introductory rate and how long it will last. You might end up paying for it through a higher margin on interest rates.
2
What is a margin?
A margin is the difference between the amount borrowed and your collateral’s value (e.g., your home). The interest rate is prime plus the margin.
3
Easily Manage Your HELOC Payments
The minimum draw is the least amount you must take out at closing.
4
What is the average balance I must maintain?
HELOCs often expect you to maintain a balance, so find out what the interest rate will be.
5
What is the average balance I must maintain?
HELOCs often expect you to maintain a balance, so find out what the interest rate will be.
6
What is the average balance I must maintain?
7
Is there a cancellation fee?
Standard mortgage loans often have prepayment penalties. With a HELOC, there usually are cancellation fees instead.
Don’t forget to ask your loan officer what you’ll need to prepare for the underwriting stage.
Submit Your Documents
The more organized you are, the faster the loan approval process. So be sure to include all the documentation the lender requires for underwriting.
The documents typically needed for loan underwriting include:
- A pay stub covering the last 30 days
- W-2 forms from the past two years
- Signed federal tax returns from the past two years
- Documentation of any other sources of income
Your two most recent bank statements - Documentation of your down payment source in the form of investment or savings account statements showing at least two months of ownership.
- Documentation of a recent name change, if applicable
- Proof of identity (drivers’ license or non-driver ID)
- Social security number
- A certificate documenting housing counseling or homebuyer education, if available.
Again, be sure to check that these are what you will need and nothing is missing.
Approve the Interest Rate
If you get approval on your application, your lender will ask you to approve a particular interest rate. Prepare yourself by staying abreast of current lending rates, so you’ll know what seems reasonable.
The Final Stages
A New Home and Home Owner
Successfully qualifying for a first-lien HELOC application and completing it must seem like a huge relief. All those documents to prepare. All that time waiting for news of your loan approval.
If you’re a first-time homebuyer, you might have found this article a bit overwhelming. Many people do. So be sure to keep learning about this and other financial topics for more information on how to manage your money.
At First Lien HELOC, we focus only on first-lien HELOC borrowers. That way, we can explain the application stages to you in detail and try to expedite the process. Please contact us today.