With increasing interest rates from credit cards and traditional forms of loans (and the rigid credit ratings to boot), one may opt for choosing a loan that is convenient, fast, easy and with lower interest.
However, one must carefully study such arrangements because every loan has its catch.
Today I’ll introduce you to a “convenient, fast, easy, low-interest” loan called HELOC, or Home Equity Line of Credit.
About Figure Home Equity Line of Credit
Figure is a new, San Francisco-based online lending platform led by co-founder and CEO Mike Cagney. It leverages blockchain, artificial intelligence, and analytics in approving and providing home equity loans such as HELOC for homeowners.
Figure is a “fintech” or financial tech company. As a fintech company, Figure works to streamline financial services using technology, from customer access to data analytics, to make transactions such as HELOC easier, faster, and more convenient.
The Figure Home Equity Line, as a fintech product, is the first in the market to streamline an all-digital process home equity loan, offering a home equity HELOC decision within five days.
The company can lend up to as much as $150,000, depending on the value of the home subject to HELOC.
How to Apply?
The online application is as easy as filling out a one-page form within minutes. The form asks for details such as an address, property type, and income.
In a matter of minutes, you can already figure out if you’re qualified for a home equity loan, along with the appraised interest. The latter is made possible through their “soft credit checks,” along with an automated property valuation (home appreciation calculator) online.
Figure also uses the “Automated Valuation Model” (AVM) to assess the value of the property concerned. Sales of similar properties, public records, and price trends will determine your AVM or your property’s valuation in the market.
It is good to take note that home equity loan scores from Figure will not affect your current credit score.
A lot of borrowers tend to be concerned about the hit to their credit score from a credit inquiry; this should not be a problem in this case.
If you are interested in getting a HELOC, a virtual meeting will be set up between you and the e-Notary from Figure. During the virtual meeting, the e-Notary will collect your details and your virtual signature once you push through with your application.
The traditional home equity process has a timeline of 45 days, but this timeline is around 5-7 days for Figure. Also, it is good to note that there are no hidden charges for products such as HELOC from Figure (e.g., maintenance fees, appraisal fees, late fees, and prepayment penalties). Interest rates can be as low as 4.99%.
When you get approved, you receive the full amount of your loan. The line of credit can be borrowed from again and again if one replenishes the home equity amount in your property. Loans have to be at least $500 and no more than 10% of the home’s equity.
The loans are made for two years from the date of the loan origination. If the loan is paid off earlier than the agreed payment time, you can take an additional draw during the 12 months following the payment.
Currently, Figure’s equity line reaches 25 states but will be available to all states by the end of 2019.
Pros and Cons of Figure HELOC
- Easy, fast, online application process
- Soft credit check as to not affect your current credit score
- Virtual meeting to help you with the process
- Fast process timeline
- Competitive Interest Rates
- Since Figure is a new company with few reviews, you solely rely on what the company says. It is the risk one must take, not only on Figure but in tech startups in general.
- HELOC is the only offered product, if you are interested in a Home Equity Loan, you would have to look elsewhere
- No in-person communication
Can you Qualify for Figure HELOC?**
Basic eligibility requirements include the following:
|Personal qualification requirements||Home qualification requirements|
|Technical requirements (e.g., a working camera phone, desktop camera, or laptop camera) to have a transaction with e-Notary.||Single-family residences and townhouses|
|Valid identification cards (e.g., passport, State ID, or US Driver's License)||A private home, second home, or investment property|
|An existing and active bank account||You must be the named owner of the property|
|“Good” credit score (680 and above)||The property can be held solely, jointly, by an LLC, or by a revocable trust|
|Flood insurance in flood zone V or A|
What Exactly is HELOC?
HELOC is a form of a secondary home mortgage- it involves using your home as collateral. HELOC, as a secondary mortgage, taps into the home equity as a line of credit.
It uses the value of the house as the collateral for the loans that you will obtain. In effect, it increases your mortgage in exchange for gaining cash borrowed against your home’s value.
This balance can be drawn from by the payor as approved by the lender.
There is a borrowing limit set by the lender, and this can be used (or maximized) as a credit balance. Just like a credit card, one can borrow multiple times up to the credit limit.
But unless you have a huge purchase or some emergency in mind, it is not a good idea to tap into your home equity. After all, non-payment can cause you to lose your home.
Payment terms can be from five (5) years to twenty (20) years, and interest rates vary from a low of under 10% to 20%. You must commit to paying the balance religiously or risk losing your home.
Who is HELOC Right For?
HELOC offers the flexibility of both payment terms and interest rates, as mentioned above.
Some common uses of HELOC are as follows:
- College Tuition Allotments: The start of college requires a hefty tuition fee. Thus, HELOC comes in handy as a financial cushion. It can be used as an instant infusion of cash to meet the financial obligations of a college student and can be repaid through the rest of the semester.
- Home Renovations: HELOC comes in as a “re-investment” of mortgage value of the home. As the HELOC is repaid over a given amount of time, both the line of credit and the property value increases. This is assuming that no other external factors come into play, causing depreciation of the property value.
- Emergencies for the Family: The line of credit serves as an emergency fund for whatever purposes it might help.
- The High-low Interest Tradeoff: Unlike credit cards that charge as much as 20%, HELOC only has an interest of 10% or lower.
Is HELOC right for you? Here are some advantages and disadvantages of making this type of non-traditional loan.
Advantages of Traditional HELOC
- Interest Rates: HELOC, like any other type of second mortgage, offers the lowest interest rates compared to the different types of loans. Making the home itself as collateral decreases the risk for the lender since they can sequester the property/properties concerned once the loan becomes past due.
- Loan Amount: One can borrow as much as 80% of the home’s value.
Disadvantages of HELOC
- Possibility of foreclosure: The home becomes the collateral for the line of credit. If the owner fails to pay for any reason, the house can go into foreclosure.
Is Figure Right for You?
Using the equity of your home to consolidate debt is one expertise of Figure, an online platform that offers HELOC as one of its many services.
It is fast, simple, and transparent—with easy, secure, and quicker processes. You might want to consider securing a HELOC loan from Figure.
**If a person with multiple properties has a property or multiple properties that don’t qualify for HELOC, they can apply with the remaining property/properties.** If one of the two owners of the house doesn’t qualify due to their credit scores, the qualified one can represent and apply in the non-qualified owner’s behalf.