How to Fund Your Down Payment: Options for First-Time Buyers

Hey, hey, it’s Chad Helmcamp here with BWC Lending, and today, we’re diving into a financial tool that sounds a little confusing at first but can actually be a game-changer for homeowners: the HELOC.

No, it’s not a new app or trendy coffee drink—it’s short for Home Equity Line of Credit. And let me tell you, it’s a fantastic product, especially in today’s market with interest rates doing their best roller coaster impression.

So, What is a HELOC, Anyway?

Think of a HELOC like a credit card, but with your home acting as the trusty collateral. It's a line of credit you can borrow against based on the equity you have in your home. And here’s the best part: it’s a second lien, meaning it sits behind your primary mortgage (no, it doesn’t steal the spotlight—it's just there for backup).

In Texas, you can borrow up to 80% of your home's value. Sounds cool, right? But let’s break it down with a simple example.

The Numbers Game: Let’s Say Your House is Worth $100,000...

If your house is worth $100,000 and you owe $50,000 on your mortgage, you could get a HELOC for $30,000. So, your total debt (primary mortgage + HELOC) would be $80,000—80% of your home’s value. Easy peasy, right?

Why Is a HELOC So Great?

It’s Affordable: Seriously. Getting a HELOC is pretty cost-effective. In most cases, all you need to do is order an appraisal to determine how much equity you have. No crazy fees involved.
No Closing Costs: That’s right—zero. No closing costs! It’s like finding a surprise gift in your mailbox.
You Only Pay for What You Use: If you get approved for a $30,000 HELOC, but you only need $5,000 right now, you only pay interest on that $5,000. Think of it as a shopping spree where you only buy what you need—and you pay for it in small, manageable chunks.
Interest-Only Payments During the Draw Period: This is where it gets even better. During the draw period (typically 5-10 years), you’re only making interest payments. That means lower monthly payments! It’s like buying groceries and only paying for the snacks—until you decide it’s time to pay for the veggies too.

What Happens After the Draw Period?

When the draw period ends, you’ll start paying principal as well as interest, which means your payments will go up a bit. But that’s cool—you’ve had years of lower payments to work up to it.

The Catch: Higher Interest Rates Ahead

Now, before you get too excited, let’s talk about the potential downside in today’s market: rising interest rates. When the Federal Reserve hikes their rates (and they have been), your HELOC’s interest rate will likely go up too. Ouch. The good news? Rates are expected to come back down in a year or two, so there’s light at the end of the tunnel.

The Bottom Line: Is a HELOC Right for You?

A HELOC can be a great tool for homeowners who need quick access to cash for things like home improvements, debt consolidation, or even just to have a financial cushion. But, as with all financial decisions, it’s important to weigh the pros and cons based on your unique situation.

And remember, interest rates might be high right now, but that doesn’t mean they’ll stay that way forever. So, if you’re ready to take advantage of a HELOC or have questions about how it works, give me a call. I’m here to help you make smart, informed decisions.

Final Thoughts: Don’t Let the Name Scare You

So there you have it—a Home Equity Line of Credit (HELOC) in all its glory. It’s a powerful tool that can help you tap into the value of your home without the hefty price tag of other loans. And, as always, if you need more details or want to chat about whether a HELOC is right for you, you know where to find me.

Want to learn more? Watch the full video on YouTube here! [Watch Video]