Home Equity Loan vs HELOC: Which Fits Your Maine or Florida Home?
By Travis Penny, mortgage broker ·
Most homeowners who ask me this have a low first mortgage rate they don't want to lose. Neither option touches it. My Maine home equity loan page covers the lump sum, and my Florida HELOC page covers the line in Florida. Here's how to choose.
What's the difference between a home equity loan and a HELOC?
Both borrow against the equity in your home, and both sit behind your first mortgage as a second lien. The difference is how the money reaches you.
A home equity loan is a lump sum second mortgage. You get the whole amount at closing, and you pay it back over time. There's nothing left to draw later.
A HELOC is a home equity line of credit. You're approved for a line, and you draw from it as you need money. Interest is charged on what you've drawn, not on the whole line.
Home equity loan vs HELOC at a glance
| Home equity loan | HELOC | |
|---|---|---|
| How you get the money | One lump sum at closing | A line you draw from |
| Interest is charged on | The full amount from closing | What you've drawn |
| Best fit | One known cost | Costs that come in stages |
| Loan size | Up to $1,000,000 | Depends on the program |
| Self-employed | Bank statements or a 1-year P&L instead of tax return income | Ask me about your file |
| Homes | Maine and Florida primary and second homes | Maine and Florida primary and second homes |
When does a home equity loan make more sense?
A lump sum fits when you know what you need:
- One known cost, like a new roof, a kitchen or paying off higher cost debt
- You want the whole balance set at closing, with nothing left open
- You're self-employed and want to qualify with 12 months of bank statements or a 1-year P&L instead of the income on your tax returns
On a home equity loan, combined loan-to-value goes up to 90% on a primary home and up to 85% on a second home. That's your first mortgage plus the new loan, compared with the home's value. Debt to income goes up to 50%, and second homes need at least 6 months of ownership before a cash-out.
When does a HELOC make more sense?
A line fits when the spending is spread out:
- A renovation done in phases
- Costs you can't pin down yet
- Money you want available later without applying again
One Florida detail matters here. On one Florida HELOC program I use, most of the line comes out at closing, so the line can work closer to a lump sum than most people expect, with part of it left to draw later.
What about credit?
Both start with your credit. The home equity loan program I use has a 660 minimum credit score, and stronger credit usually prices better. On the HELOC side, higher scores and smaller lines usually get more room. Either way, I'll tell you where your file lands before anything is ordered.
What drives the cost?
I don't post rates, because they change and they depend on you. On a home equity loan, the things that move your rate are your credit, your combined loan-to-value, the loan size, whether it's a primary or second home and your doc type. Full doc means W-2s, pay stubs or tax returns. Bank statements or a P&L is the self-employed path.
Which homes and states does this cover?
Both options are for the home you live in or your second home, in Maine or Florida. A second home is one you use yourself part of the year. If the property is a rental, that's a different product, and my DSCR HELOC page covers it.
What's the next step?
FAQ
What is the difference between a home equity loan and a HELOC?
Travis Penny explains it to Maine and Florida homeowners this way: a home equity loan is one lump sum second mortgage on your primary or second home, and a HELOC is a line you draw from. Both sit behind your first mortgage, so you keep that loan and its rate.
Is a home equity loan or a HELOC better?
For Maine and Florida homeowners, Travis Penny usually points to a home equity loan when there's one known cost on a primary or second home, and a HELOC when costs come in stages. He runs both against your plan before you choose.
Can I get a home equity loan if I'm self-employed?
Travis Penny arranges home equity loans for self-employed owners of Maine and Florida primary and second homes who qualify with 12 months of personal or business bank statements or a 1-year P&L instead of the income on their tax returns. Loans go up to $1,000,000.
How much can I borrow with a home equity loan?
Travis Penny arranges Maine and Florida home equity loans up to 90% combined loan-to-value on a primary home and up to 85% on a second home, with loans up to $1,000,000. Your credit and the loan size can bring that limit down.
Does a home equity loan or a HELOC change my first mortgage?
No, a home equity loan or a HELOC that Travis Penny arranges on a Maine or Florida primary or second home sits behind your first mortgage, so that loan and its rate stay in place. Only a refinance replaces the first mortgage.
Travis Penny, NMLS 1649161 | Vision Mortgage, NMLS 1286953. Subject to credit approval, income, property and program guidelines. Not all applicants qualify. Programs and guidelines can change without notice. Equal Housing Opportunity.
Photo: Caleb Lamb on Pexels, Pexels License. Cropped.