Are you a homeowner who needs money for larger expenses or to consolidate higher-interest-rate debt on other loans, such as credit cards? Worry not. The best solution to this problem is a home equity line of credit, or a HELOC.
In this article, we will discuss in detail what HELOC is, how much you can borrow with it, and what its basic requirements are.
What is HELOC?
The HELOC, also known as a home equity line of credit, is a revolving line of credit, just like your credit card. It is secured by your home’s equity and allows you to borrow, spend, and repay funds as needed. But during the draw period, it has a preset limit that you can not exceed. And once this fixed draw period ends, you enter the repayment period, during which you have to repay the outstanding balance.
However, as compared to other types of loans, a home equity line of credit has a lower interest rate. Additionally, this interest may be tax-deductible. That’s why it is advisable to consult your tax advisor in this regard, as these experts can offer you better assistance.
How Much Can You Borrow with HELOC?
The amount you can borrow with the home equity line of credit depends on various aspects. This includes the amount of equity you have built and the current value of your house. Generally, many lenders let you borrow equal to the difference between a specific percentage of the value of your home and your outstanding mortgage balance. But some lenders also have a few additional requirements that you have to fulfill to qualify for the HELOC.
However, many people prefer home equity loans rather than HELOCs. You can also opt for that option. But before proceeding, you must have a deep understanding of home equity loan vs HELOC. Therefore, for more information, consider reading a detailed guide about these loans on AmeriSave’s website.
What are the Requirements for HELOC?
Before you proceed to apply for the HELOC, it is wise to gain a thorough understanding of what you will need to maximize the chances of your loan approval. And to help you navigate this daunting process, here is a list of some essential requirements for the HELOC.
Home Equity
For HELOC, you must have a significant amount of equity in your home. Many lenders require at least 15% to 20% of home equity before they let you borrow money.
Credit Score
To maximize the chances of your HELOC approval, you must have a good credit score. Otherwise, you have to face many severe problems and delays in the process. Generally, a credit score of 660 or higher is considered good, but in some cases, lenders may require a credit score of 680 or even 700.
Debt-to-Income Ratio (DTI)
Lenders compare your monthly debt payments to your monthly gross income to determine whether you qualify for a HELOC. A lower DTI indicates that you have a manageable level of debt relative to your income, which reduces the chances of your loan approval.
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James