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Home Equity Line of Credit (HELOC)

Owning your own home is an important investment. With this investment comes various financial options. You can access what you’ve paid into your home and its value to make other current expenses easier to manage.

With a Home Equity Line of Credit, make the most of the equity you’ve paid into your home by borrowing against it to finance other expenses or pay down high-interest debt. It provides flexible, low-interest and affordable financing available as a revolving line of credit.

What is a Home Equity Line of Credit?

You have a handful of options when choosing financing, whether you’re looking to cover expenses, pay down high-interest debt, pay student loans, or other needs.

This could include getting a personal loan or credit card but these might not provide the most affordable terms. They often have high interest rates because they don’t allow you to offer any collateral to secure the loan. 

With a Home Equity Line of Credit (HELOC), you can access financing for various needs by borrowing against the equity you’ve already paid into your home. It allows you to benefit from the investment you’ve made in your home with low-interest financing.

Depending on what you owe on your current mortgage, you can borrow up to 85% of your home’s value. Approvals for HELOCs are simpler than mortgages and there are typically no application fees or closing costs.

Once approved for a HELOC, you can access a large sum of money right away or withdraw smaller amounts as needed. Within this “draw period,” you can also pay your outstanding balance on an ongoing basis, which replenishes the money available to borrow, much like a credit card. Otherwise, you can make minimum monthly payments on the amount you owe during this time.

When your draw period ends, the length of which may vary depending on your terms, you begin the repayment period where you’ll pay the remaining balance with interest like a typical loan.

These features make HELOCs a popular option for homeowners who need to finance other expenses or manage high-interest debt with low-interest and flexible financing.

How to Get a Home Equity Line of Credit

To learn whether a HELOC is the best option for reaching your financial goals, connect with us. To get you started, we’ve outlined the steps and documentation needed to help you understand what it takes to get approved for a HELOC.

The Financing Process

By sharing basic information about your current finances and interest in a HELOC, we’ll work with you to pull your credit report and calculate how much you can potentially borrow, depending on the equity in your home, the home’s value, and whether you currently have a mortgage.

We’ll also discuss the terms you qualify for and your options, as well as request various documentation for the underwriting process to make sure the HELOC begins on a solid foundation.

We’re with you through each step, leading to closing where you can begin to make the most of your home’s equity with your new line of credit.

HELOC Requirements to Meet

These are the common requirements often needed to qualify for a HELOC. If you have questions about these requirements, we’re here to help.

  • You’ll need to have a certain amount of equity already paid into your home. Your home equity is the difference between how much you’ve paid on your mortgage and your home’s market value. To qualify for a HELOC, you typically need to have at least 15-20% equity in your home.
  • We’ll use the amount of equity you have to calculate your Loan-to-Value (LTV) ratio to see if you qualify. With high equity you may be able to borrow up to 85% of your home’s value, depending on how much you currently owe on your home.
  • Credit score requirements vary. In most cases, a credit score of 620 or higher qualifies. 
  • Through underwriting evaluation, you’ll need documentation of your Debt-to-Income (DTI) ratio, which shows how much of your monthly income goes to paying your current debts.
  • You may also need to verify employment history and that you receive consistent ongoing income.
  • Showing proof of reliable payment history on your current or past mortgage is also helpful in qualifying for a HELOC.

Home Equity Line of Credit FAQs

Making the most of your home and your financial goals makes a big impact on your life. It’s ok to have questions. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.

What is the difference between a HELOC and a home equity loan?

A HELOC acts like a credit card, with revolving financing you can borrow, pay back and borrow again during the draw period.

A home equity loan differs in that it’s more like a traditional mortgage. It’s a loan rather than a line of credit. You borrow one specific amount and make regular payments during a fixed repayment period.

For a home equity loan, you apply for the total amount of financing you need. This amount will depend on how much equity you’ve paid into your home, as that is what you’re borrowing against. You receive it as one lump sum. During the agreed-upon repayment period, you pay a fixed monthly amount that goes both toward interest and the loan principal, much like a mortgage.

Both HELOC and home equity loans offer lower interest rates than many personal loans because your home is used as collateral with the lender.

How can I use the money from a Home Equity Line of Credit?

In most cases, a HELOC is flexible and can be used for any expenses you choose.

It’s common to get a HELOC to cover expenses such as student loans, home renovations, emergency expenses like medical bills, or other things you may get a personal loan for such as buying a car.

Because its interest rates are lower, a HELOC is also great for consolidating and paying down high-interest debt like credit cards.

You can borrow only what you require, which is helpful if you’re initially uncertain about how much your total expense will be and how much financing you will need. This prevents you from borrowing and paying interest on more than you need if, for example, the expense you’re using it to cover is lower than anticipated.

How do I access the funds from a HELOC and when do I need to pay them back?

Once approved, in many cases, you’ll have access to your HELOC funds through checks or a card from the lender that is tied to your HELOC account.

When you apply for a HELOC, we’ll work with you to establish agreed-upon terms. Part of those terms will involve deciding the length of time for the draw or borrowing period, as well as the length of the repayment period.

During the draw period, you’ll make minimum monthly payments on the amount you’ve drawn that you owe. During this time you can pay more of your overall balance so that you can continue to borrow against it up to a certain amount, much like how a credit card’s limit works. This draw period may last for 5-10 years, as an example.

After that time period ends, you’ll begin the repayment period where you can no longer withdraw funds and will instead begin paying down the remaining balance with interest. The repayment period may be 10-20 years for example.

How do HELOC interest rates compare to other financing like personal loans or credit?

HELOC interest rates are lower than other personal loans or credit cards. This is possible because you’re borrowing against an asset (your home) that helps to secure the loan. 

Your home is valuable collateral that the lender can rely on if you can’t repay your HELOC. This makes lending the money less of a risk for the lender so that you can have easier access to financing.

It’s also something to consider if you have concerns about repaying a HELOC because, if you can’t make payments, your home is on the line for the balance you owe.

What type of income is needed to qualify for a HELOC?

You’ll most likely need proof of reliable ongoing income to be approved for a HELOC, because consistent income shows that you can make monthly payments to pay back your loan. This might include providing W-2s and pay stubs.

If your income is too low to get approved, a co-signer may help to meet Debt-to-Income requirements.

If you don’t have consistent income from a traditional job, it may be more challenging to get approved for a HELOC but there are other sources of income that can be considered. This might include income from investments like real estate or retirement accounts, self-employment, a pension, a trust fund, social security, child support, long-term disability, or VA benefits.

We’ll help you determine if you have the necessary factors and documentation in place to get approved for a HELOC.