What is a first-lien HELOC?
A first-lien HELOC is a home equity line of credit that serves as the primary lien on your home. Unlike a traditional HELOC, which is typically a second lien behind an existing mortgage, a first-lien HELOC replaces or stands alone as the primary loan on the property. This type of HELOC is ideal for homeowners who have paid off their mortgages, offering a flexible way to tap into their home equity for various financial goals.
Common Uses:
Consolidating debt at lower interest rates than personal loans or credit cards4navigates to numbered disclaimer
Financing home improvement projects or renovations
Launching a small business
Covering major expenses like college tuition or family planning
Difference between traditional mortgages and first-lien HELOCs
Traditional mortgages provide a lump sum upfront, which is repaid in fixed monthly installments over a set period. In contrast, a first-lien HELOC functions as a revolving line of credit, giving you the flexibility to borrow, repay, and borrow again during the draw period, similar to a credit card but secured by your home.
How does a first-lien HELOC work?
A first-lien HELOC combines the flexibility of a revolving line of credit with the advantages of holding the primary lien on your home. It typically consists of two key phases:
Draw Period: The loan is fully disbursed, and you can take additional draws as needed within this period.
Repayment Period: You begin repaying both principal and interest on the outstanding balance.
For example, if you own your home outright and need $50,000 for a major expense or $300,000 for a major home remodel, a first-lien HELOC allows you to borrow that amount while retaining the flexibility to draw more, up to the credit limit, as needed.
Requirements to qualify for a first-lien HELOC
To qualify for a first-lien HELOC, lenders typically require:
High credit scores (usually 680+)
Proof of stable income
A low debt-to-income (DTI) ratio
Sufficient home equity
Pros and cons of first-lien HELOCs
Before choosing a first-lien HELOC, weigh the benefits and drawbacks.
Pros
Lower interest rates compared to personal loans or credit cards4navigates to numbered disclaimer
Flexible access to funds during the draw period
Potential tax benefits on interest payments (consult a tax advisor)
Cons
Depending on the lender, variable rates may increase during repayment
Risk of foreclosure if payments are missed
Fees, such as origination or appraisal costs
A first-lien HELOC can be a powerful tool for accessing home equity, but it’s essential to weigh the pros and cons based on your financial situation and goals. Consulting with a financial advisor can help ensure this option aligns with your needs and long-term plans.
Alternatives to first-position HELOCs
If a first-lien HELOC isn’t the right fit for your needs, there are several alternatives to consider:
Cash-out refinance
A cash-out refinance allows you to access your home’s equity by taking out a new mortgage for a higher amount than your current one. The difference between the two loans is provided to you as cash, which you can use for any purpose. This option may offer lower interest rates compared to a HELOC, but it comes with significant closing costs and the requirement to reset your mortgage terms. Compare cash-out refinance options here.
Personal loans
Personal loans can be a viable option if you need funding but don’t have substantial home equity or prefer not to use your home as collateral. While personal loans often come with higher interest rates than home equity-based loans, they typically have faster approval times and are unsecured, meaning you don’t risk your home. They can be ideal for smaller amounts or short-term needs, but the higher interest rates may make them less favorable for larger amounts or longer repayment terms.
Home equity loans
A home equity loan is similar to a first-lien HELOC in that it allows you to borrow against your home’s equity, but it provides a single lump sum instead of a revolving line of credit. The loan typically comes with fixed interest rates and fixed repayment terms, making it a good choice if you prefer predictable payments. However, it lacks the flexibility of a HELOC, as you can’t borrow, repay, and borrow again.
Get started with a first-lien HELOC from Figure
Figure offers a seamless, digital-first solution for homeowners looking to access their home equity quickly and easily. With a first-lien HELOC from Figure, you can enjoy a fast, transparent process that puts you in control of your financial future. Key benefits include:
Competitive fixed rates: Enjoy fixed interest rates that can help you better plan your finances with predictable payments over the life of the loan.1navigates to numbered disclaimer
Borrow up to $400,000 with redraw capabilities: Access up to $400,000 in equity with the flexibility to borrow, repay, and borrow again during the draw period, giving you more control over how you use your funds.5navigates to numbered disclaimer
Funding in as few as five days: With Figure's streamlined online process, you can receive your funds in as little as five days, enabling you to quickly address major expenses or projects without lengthy delays.2navigates to numbered disclaimer
Whether you’re financing home improvements, consolidating debt, or covering other large expenses, Figure makes it easy to get started and make the most of your home equity. Begin the process today and discover how Figure’s first-lien HELOC can work for you.
Additional FAQs about 1st-lien HELOCs
Can you sell your home if you have a first-lien HELOC?
Yes, but the outstanding balance must be paid off at closing. The HELOC acts as a lien on the property, requiring resolution before ownership can transfer.
What’s the difference between a first- and second-lien HELOC?
The key distinction is lien priority. A first-lien HELOC takes precedence, making it more attractive to lenders and potentially offering lower rates.
