• 21 Dec, 2023

8 Tips for HELOC Loans on Second Homes in Texas

How to get HELOC loans in Texas for a second home?

Having keys to not just one, but two houses in Texas must be cool, and if you’re one of them, you have a wonderful opportunity to double your comfort and financial needs with a HELOC.

If you’re still thinking if it’s possible to take out a HELOC on a second home, it is doable as long as there’s enough equity in your home.

In fact, the process is pretty similar to applying for a HELOC with your primary residence. Still curious to know the ‘how’? Keep reading to learn the 8 HELOC loan tips that can transform your second home into a valuable asset.

Quick HELOC overview

As a Texan, the concept of HELOC loans in Texas might not be new to you. However, before jumping into the process of applying for a HELOC on a second home, it is essential to brush up on the basics.

A home equity line of credit is used to borrow against the equity built up in your home. It is a revolving line of credit and acts more like a credit card. It means that you can draw up to a certain limit approved by your lender and repay it over time.

Until the repayment is fully done, your home serves as collateral, and failure to repay will lead to foreclosure.

Have you ever wondered why people call it a second home? Hang in there, you will know it in the next section!

What exactly is a second home in Texas?

A second home is a property that you own or occupy for a limited period of time, mainly during vacations, and long weekends.

It is more like a private ownership of a residence other than one’s primary residence. That’s why they are referred to as vacation property.

But, it is time for you to realize that your vacation property is worth more than you think it is. You can do more with it than just lounging around during your vacations.

Ready to maximize the advantages of your HELOC on a second home? Stick around as we expose the solutions to you in the coming sections.

Benefits of HELOC on second homes in Texas

Owning a second home is not just a matter of pride but also opens doors to multiple financial opportunities through a HELOC.

Here are the top 2 benefits:

1. Increased property values

   
   

   Property values in the U.S. have seen a steady increase and homeowners of second homes are bound to benefit from their valuable assets because HELOC loans in Texas will help them tap into the increased equity.

   
   

   Here’s why it matters to you -

   
   

   You get to use the accumulated equity for future investments such as home upgrades, renovations, debt consolidation, and other financial goals.

   
   

2. Flexible borrowing options

   
   

   Unlike traditional loan options where you get a lump sum for your financial needs, the best HELOC loans in Texas let you borrow funds only when you need them. This makes it easier for those with second homes to plan their financial needs accordingly.

   
   

   This helps borrowers avoid unnecessary debt accumulation while accessing funds only when they need it.

   
   

Alright, are you ready to learn the 8 tips to secure a HELOC on a second home? Here you go!

8 tips to get HELOC on second home in Texas

If you meet the lender guidelines, getting a HELOC is pretty similar to your primary residence. However, the requirements for a HELOC on a second home vary by lender, but here are a few tips from our mortgage experts at HLRI.

1. Your eligibility criteria

   
   

   Securing a Home Equity Line of Credit (HELOC) on a second home requires careful consideration of specific eligibility criteria. You need to understand the distinct requirements compared to those for a primary home.

   
   

   Let's see what these requirements are:

   
   

   • The maximum debt-to-income ratio must be 43%.

     
     

   • Your maximum loan-to-value ratio must be around 80%.

     
     

   • You need to have a minimum credit score of 720.

     
     

   • You must have at least 18 months’ worth of cash reserves.

     
     

   • Your property must be occupied by at least one tenant in place and you need to have a rental income history.

     
     

2. Research & shop around to grab the best deal

   
   

   Do you know the reason why the HELOC rates differ from one lender to another? It’s simple, every lender has their way of assessing their borrower’s risk.

   
   

   So, that is the main reason why experts want you to research and shop around to get the best HELOC loans in Texas.

   
   

   Don’t just look for interest rates and fees. Understand their draw period and repayment terms. Apply with multiple lenders and don’t worry they won’t impact your credit score in any way.

   
   

3. Don’t overlook negotiation

   
   

   If you don’t have an obvious choice yet, try again and contact your lenders and ask them if they can make a more competitive offer.

   
   

   Tell them about other competing offers in the market, and let them know why you still prefer to choose them over the rest.

   
   

   Your negotiation must be based on your present situation and the more your research, the better you can negotiate. So, if you’re looking for the best HELOC offers, don’t forget to negotiate.

   
   

4. Gain more HELOC knowledge

   
   

   Understand how different phases of HELOCs work on second homes in Texas. Ask your lender if the draw period and repayment period are the same as heloc on a primary residence.

   
   

   Usually, the repayment period begins once the draw period ends, where the borrower will start to make monthly payments on both the principal borrowed and the interest.

   
   

5. Be careful with teaser rates

   
   

   A suspicious downfall in the HELOC interest rates is likely to be a teaser rate and it is used to attract potential borrowers.

   
   

   These rates will increase over time once the introductory period is over. So, we advise you to not fall into the trap of the teaser rates. Don’t just focus on the advertised rates.

   
   

6. Try to get a conversion clause

   
   

   As you may know, HELOCs come with variable interest rates and it changes throughout the term of the loan. But, if you’re not comfortable with variable rates, you can do so with a ‘conversion clause’.

   
   

   Here’s what it means - It allows you to change your variable interest rates to fixed during the draw period.

   
   

   This clause lets you lock in fixed interest rates when the rates rise, and switch back to variable rates when there is a downfall.

   
   

7. Check if there are any additional fees

   
   

   Lenders often charge additional fees to compensate when they offer lower interest rates, and if you fail to maintain a minimum balance on your line of credit, you will be charged fees and penalties.

   
   

   Inactivity fees will be added if you fail to draw money within a specified time. This is usually done in the form of a minimum draw upon closing. So, technically you will be borrowing something that you don’t need at the time.

   
   

8. Avoid balloon payments

   
   

   If there is a balloon payment clause in your HELOC, you will be required to pay the entire balance at the end of the draw period.

   
   

   They are unusual in the lending industry and it is good for you to stay away from such clauses because it will further drain your assets in the long run.

   
   

By following these eight tips, you can secure the right HELOC on a second home in Texas at the right time.

Who will need HELOC loans in Texas?

As a matter of fact, a home equity line of credit is available to everyone who meets the lender's requirements. However, if you’re a homeowner who falls into the below categories, HELOC loans in Texas will highly benefit you.

1. You need to make immediate payments for home improvements.

   
   

2. You need cash temporarily to meet certain expenses.

   
   

3. You need to invest by purchasing a property.

   
   

4. You need to consolidate higher-interest debts as soon as possible either to improve your creditworthiness or to get the debt stress off your head.

   
   

If you fall under any of the above categories, visit Home Loan Rate of Interest and apply for your HELOC in just 5 minutes and expect the funds in your account in a 5-day timeframe.

Transform your second home’s value

Securing a HELOC on your second home involves navigating specific requirements set by lenders. By meeting all the lender requirements, you can tap into the true potential of a HELOC loan on second homes.

Stay updated with the current market trends and make strategic decisions considering your financial history.

But hey, remember that making the dream of turning your second home into a financial asset is more achievable than you might think.

Ready to apply? It just takes 5 minutes.