When you need a lump sum of money to accomplish a specific goal — e.g., paying for college, a renovation project, a second home, etc. — you have several options available to you.
Two of the most common of these options are standard home equity loans and or Home Equity Lines of Credit, or HELOCs. Both draw on the equity or value of your home, but each offers its own set of unique advantages and disadvantages. Read on to learn more.
What Is a Home Equity Loan?
When you accept a home equity loan, you'll receive the money you borrowed in one lump sum, along with a fixed interest rate.
The fixed interest rate makes budgeting easier since your monthly payment will remain the same month to month.
Of course, you also have to be careful of either pulling out too much money or not enough in your lump sum.
If you’re not sure what type of loan to get and need general assistance when it comes to purchasing a new home, contact one of our top-rated real estate agents.
What Is a HELOC?
With a HELOC, you are given a borrowing limit that you can draw from multiple times, which gives you more flexibility.
In this way, HELOCs work similarly to a credit card, as you can continue drawing from them as needed. This can you avoid pulling out too much at once or running into a situation where you haven’t pulled out enough and don’t have an option to get more.
These usually have an adjustable interest rate that is typically lower than that of a home equity loan. Your monthly payment may vary depending on the interest rate you receive.
Click here to learn more about HELOCs vs. Home Equity Loans.
USAA HELOCS: Pros and Cons
USAA offers HELOC rather than home equity loans to those who qualify and are eligible to become a member of USAA.
USAA has membership limited to current and honorably discharged military members, as well as those service members' spouses and children. This bank was previously open to anyone, so if you already had an account with USAA, you will still be able to use their services as you will be grandfathered in.
If you’re unsure of whether you’re eligible to join USAA, check its website for a full list of eligibility requirements. The application process is simple and can be completed online.
There are many benefits to becoming a member of USAA. For example, USAA doesn't charge closing fees, annual fees, or early payment charges on their HELOCs. It also offers competitive rates and additional services such as banking and comprehensive insurance coverage.
You can learn more about all of USAA’s products and services here.
If you're considering using a HELOC to purchase a second home or investment property and would like more information, you should contact an experienced, local real estate agent who can guide you through the process from start to finish.
A real estate agent can help you evaluate all of your financial options. In addition, they’ll be able to guide you through the entire process of purchasing a home to make the process as simple as possible and help you avoid costly mistakes.
Using a real estate agent to help with your purchasing decisions will take some of the pressure off of you as they will take care of the details and help you make the decisions that will benefit you.
Learn more about how to negotiate the realtor commission.