Myth vs. Reality: A HELOC Isn't the Only Way to Access Your Home Equity

Homeowners have more choices than they may realize — from traditional and digital HELOCs to fixed home equity loans, alternative-documentation programs, shared equity agreements and reverse-second options.

When Financial Conditions Change, Having Options Matters

Inflation, elevated borrowing costs and economic uncertainty continue to affect household finances.

At the same time, many California homeowners have accumulated substantial equity in their properties.

That creates an interesting question:

If you decide to access some of that equity, what's the best way to do it?

Many homeowners immediately think of a Home Equity Line of Credit.

But that's only one possibility.

MYTH: A HELOC Is the Only Way to Access Your Home Equity

REALITY: There May Be Several Ways to Access It

Today's home-equity options can look very different from one another.

Depending on the homeowner, property and program, options may include:

• Traditional HELOCs
• Digital or expedited HELOCs
• Fixed-rate Home Equity Loans (HELOANs)
• Alternative-documentation HELOCs and HELOANs
• Shared Equity Agreements (SEA), Home Equity Agreements (HEA) or Home Equity Investments (HEI)
• Reverse Second Mortgages for eligible homeowners

Some programs emphasize speed.

Others may offer lower rates or fees.

Some provide predictable monthly payments.

And certain options may allow qualified homeowners to access equity without taking on a traditional required monthly loan payment.

The goal shouldn't be to find a HELOC. The goal should be to find the home-equity solution that fits what you're trying to accomplish.

One Important Point: It May Not Have to Be Your Primary Residence

Home-equity financing isn't necessarily limited to the home you live in.

Certain HELOC, HELOAN and other home-equity programs may also be available on qualifying second homes and investment/rental properties.

Eligibility, maximum loan-to-value, credit requirements, documentation, pricing and other guidelines can differ significantly based on occupancy and the individual program.

For property owners and real-estate investors, that means equity in another property may potentially provide additional financial options worth exploring.

Don't Limit Yourself to Only One Option

Instead of asking, “What's your HELOC rate?”, consider starting with a different question:

“What do I want my home equity to accomplish?”

Not All HELOCs Are the Same

Even within the HELOC category, homeowners may have different choices. The classic HELOC structure generally provides a longer draw period — often 10 years — during which available funds can be borrowed, repaid and potentially borrowed again.

Newer HELOC programs offered through private investors and technology-based lenders may use different draw periods, payment structures, fees and qualification methods. Some emphasize speed and convenience, while others emphasize longer-term flexibility or potentially lower borrowing costs.

That's why comparing HELOCs involves more than simply comparing the interest rate.

Once you know that, comparing the available options becomes much easier.

Is Speed Your Priority?

Consider a Digital HELOC

Some digital HELOC programs use streamlined technology and electronic verification to significantly reduce processing time.

For qualified borrowers, that can mean accessing funds much faster than through some traditional home-equity programs.

Potential advantages:

• Streamlined application process
• Faster processing and closing
• Convenient electronic documentation
• Revolving access to available funds

Potential tradeoff: Convenience and speed can come at a price. Rates and/or fees may be higher than other traditional HELOC alternatives.

May make sense when: Accessing the funds quickly is more important than obtaining the lowest possible cost.

Have More Time and Want to Focus on Rate, Fees and Long-Term Flexibility?

Consider a Traditional HELOC

If you don't need the money immediately, a longer-draw HELOC may deserve a closer look. (Small initial draw is required).

Our 10-Year Draw HELOC provides an extended period during which qualified homeowners can access available funds and may offer more favorable pricing than certain expedited HELOC programs, depending on credit, line amount, initial draw and other factors.

Potential advantages:

• Long draw period
• Reusable access to available credit
• Interest generally applies only to funds actually borrowed
• Potentially more favorable rate/fee structure than certain expedited alternatives

May make sense when: You want ongoing access to equity and have enough time to complete a more traditional approval process.

Know How Much You Need and Want a Predictable Payment?

Consider a HELOAN or Fixed Second Mortgage

Not everyone needs a revolving credit line.

A Home Equity Loan, or HELOAN, generally provides a lump sum with a fixed interest rate and scheduled monthly payment.

Potential advantages:

• Fixed interest rate
• Predictable payment
• Lump-sum funding
• Existing first mortgage can remain in place

May make sense when: You know approximately how much you need and value payment stability more than the ability to repeatedly draw and repay funds.

Self-Employed or Have Income That Doesn't Fit the Traditional Box?

Consider an Alternative-Documentation HELOC or HELOAN

A homeowner may have significant income and equity but still have difficulty qualifying under traditional documentation requirements.

Certain home-equity programs offer alternative methods of documenting income for qualified borrowers.

Depending on the program, this may provide additional possibilities for business owners, self-employed borrowers and others whose financial picture isn't easily represented by traditional documentation.

May make sense when: The problem isn't equity — it's documenting qualifying income through conventional methods.

Want to Access Equity Without Adding a Traditional Monthly Loan Payment?

There are alternatives that work very differently from a HELOC or HELOAN.

Shared Equity Agreement / Home Equity Agreement / Home Equity Investment

A Shared Equity Agreement (SEA) — also commonly called a Home Equity Agreement (HEA) or Home Equity Investment (HEI) — is not a traditional loan.

For qualified homeowners, it may provide access to cash from home equity with:

• No traditional interest rate
• No required monthly loan payment
• No traditional amortization schedule

In exchange, the provider receives an agreed-upon amount based on the property's future value or appreciation according to the terms of the agreement.

That distinction is extremely important.

An SEA may eliminate the traditional monthly payment associated with borrowing, but that does not mean the money is free.

Homeowners should carefully understand the potential long-term cost, settlement provisions and any restrictions affecting future refinancing, additional secured borrowing or sale of the property before entering into an agreement.

Age 55 or Older? A Reverse Second May Be Another Possibility

For qualifying homeowners age 55 or older, a Reverse Second Mortgage may provide another way to access equity without replacing an existing first mortgage and without requiring a monthly principal-and-interest payment.

This can be particularly interesting for someone who already has an attractive first-mortgage rate and doesn't want to refinance the entire mortgage simply to access equity.

Reverse mortgage programs have specific age, equity, property and eligibility requirements, so they need to be evaluated individually.

What Can You Use Home Equity For?

Depending on the program and individual circumstances, home equity may potentially be used for:

• Home improvements or renovations
• Consolidating higher-interest debt
• Establishing emergency reserves
• Education expenses
• Medical or unexpected expenses
• Major purchases
• Business purposes 
• Helping children or other family members
• Purchasing another property 

The flexibility is one reason home equity can be such a useful financial resource.

But how you access it can be just as important as what you use it for.

Which Home Equity Option Fits What You're Trying to Accomplish?

These are general examples, not recommendations. The appropriate option depends on individual qualifications, property, goals, program guidelines, rates, fees and other considerations.

Start With the Goal — Not the Product

There isn't one home-equity solution that's right for everyone.

For one homeowner, speed may be the deciding factor.

For another, it may be obtaining a predictable payment.

Someone else may want a reusable credit line available for future expenses.

And another homeowner may be primarily concerned about avoiding an additional required monthly loan payment.

That's why the first question shouldn't necessarily be:

“What's the best HELOC?”

A better question may be:

“Which way of accessing my equity makes the most sense for what I'm trying to accomplish?”

If you're considering accessing equity from your primary residence, second home or investment property, give me a call.

We can compare the available options — including rates, fees, payments, documentation requirements and important tradeoffs — and determine which programs may fit your particular situation.

Contact Me

Robert “Rob” Clark
Home Loan Consultant
Firestone Financial Group
209-227-7745/559-476-9279

rbrtclark53@gmail.com

NMLS #357788 | Firestone Financial Group NMLS #301522 | CA DRE #01148307
Equal Housing Lender

Advertising Disclosure

Program availability, rates, fees, terms, credit requirements, property requirements and eligibility are subject to change without notice. Not all programs are available for all occupancy types. Second-home and investment-property eligibility varies by program and is subject to additional requirements and restrictions. All loan products are subject to underwriting and applicable program guidelines. Shared equity agreements are not traditional loans and may involve sharing future property appreciation or value and may contain restrictions affecting refinancing, additional liens or sale of the property. Reverse mortgage products have separate age, equity, property and eligibility requirements. This information is provided for educational and advertising purposes only and should not be considered financial, tax or legal advice.