San Diego is finally catching up to other high-priced housing markets in California, giving homeowners a chance to use home equity loans in San Diego to renovate or pay off debt.
Higher home values often lead to higher home equity for people who stay in their homes. For most of 2016, the average home equity across the country rose by $12,500. California home equity was double that.
The higher equity could be enough to spur an increase in San Diego home equity loans and home equity lines of credit, or HELOCs, says Sahil Gupta, co-founder and CEO of Patch Homes, which offers HELOC alternatives.
“They finally feel that their home price has come back enough,” says Gupta, who has worked in the consumer lending industry for 10 years and has seen his company’s equity financing increase in San Diego.
Why seek a San Diego HELOC?
A HELOC is a second mortgage against a home and the loan money can be used for whatever expense homeowners want to use it for. Paying for college or paying off credit cards are popular, but home renovations are the biggest use of HELOCs.
A November survey by TD Bank found that 60 percent of homeowners with existing HELOCs are planning home renovations and repairs during the winter season, and 80 percent are considering using their HELOC to finance the repairs. HELOCs are used as a line of credit that’s pulled as needed, while home equity loans are used a lump sum.
Most lenders allow up to 80 percent of a home’s equity to be borrowed through these loans. The line of credit is available for up to 10 years. As money is borrowed through a HELOC, interest payments are paid through adjustable-rate loans. The principal can also be paid at the same time, though it can be put off for 10 to 20 years.
High credit score and income requirements can make qualifying for the best HELOC rates in San Diego difficult, Gupta says. Improving home prices in San Diego County, and specifically in certain areas, can help some people more than others, he says.
In the San Diego beach town of La Jolla, Gupta says he’s seen homes that sold for $500,000 in 2007 now priced at $750,000. For long-time homeowners, “if they’re not getting access to other forms of credit,” home equity loans in San Diego can help them renovate their home or consolidate debt, he says.
“These areas have taken much longer to come back in appreciation,” he says.
In Chula Vista, an area south of downtown San Diego, more people are staying in their homes longer and are using HELOCs to avoid getting a reverse mortgage, Gupta says. They’re using HELOCs as passive income for daily living expenses, he says.
Gupta says his company has also seen more HELOC requests from San Diego areas such as Pacific Beach, Poway and San Marcos, possibly due to significant home appreciation in those regions during the past few years.
HELOCs can help San Diego homebuyers
A HELOC can also be used as piggyback loan, a type of second mortgage used to cover part or all of a down payment. For buyers who can’t quite afford a down payment on a home they want to buy, a piggyback loan can help. They can allow a smaller down payment to be made and can help buyers who don’t have a large down payment avoid paying mortgage insurance.
Mark Goldman, a loan officer in San Diego at C2 Financial Corp., says second mortgages are used more often in San Diego as home prices rise. A HELOC can make the total debt service lower on a home loan, Goldman says, because only the interest on a HELOC is paid during the first 10 years of using the line of credit.
HELOCs can also used by homeowners to pay bills and other things.
“A HELOC is one way a homeowner can free up the equity in their home and use it for something else,” he says.
Goldman has a HELOC on his own house that’s he’s used to make some renovations. He’s refinancing it through his bank to a lower rate and plans to use the money to invest at a higher rate elsewhere.
While most third-party HELOC providers were wiped out in the 2007 housing crisis, banks still offer them, and Goldman recommends checking with a credit union first for the best HELOC rates.
“Credit unions often have lower life caps on HELOCS, and it’s just usually cheaper for the customer to get it there,” he says.