A home equity line of credit, known as HELOC, is a second mortgage drawn on your home’s equity. If you’re short on cash and need a loan to settle bills or attend to emergency situations, you can use your property as collateral to borrow money.
Depending on the lender, the amount you can borrow can be up to 85 percent of your home’s value or equity. However, if you have default on your payments it could lead to foreclosure on your property, so HELOC should be taken with precaution.
Weighing the pros and cons is recommended to decide whether you need to apply for HELOC or not. If you do, here’s a guide to understand the scope of the home equity line of credit. We’ve compiled the information you need to figure out if HELOC is right for you and how you can apply and qualify.
What is HELOC?
HELOC is a loan that lets you borrow against your home equity. The lender calculates the value of your property and uses this figure to provide up to a maximum of 85 percent of home equity.
There are instances when you need to borrow money while you are still paying for the primary mortgage. This is calculated based on the home’s equity minus the amount you owe on the primary mortgage.
To put it simply, the home equity line of credit is a mortgage system that gives a borrower monetary aid after evaluating the value of his or her property. The assistance comes as a withdrawal system, instead of a full credit transfer.
Getting a Home Equity Line of Credit
Under HELOC, the borrower uses the property as collateral for the loan. The lender will evaluate the worth of the property based on its standards and provide a specific loan amount. The borrower’s inability to meet the repayment schedule could be a loss of ownership to the house.
In the United States, the requirements for HELOC vary depending on the lender. However, the standard qualifications include the following.
- 43% debt-to-income ratio
- 620 or above credit score
- 15% home value more than you owe
- Strong history of paying bills on time
There are a number of lenders and banks that offer a home equity line of credit. For instance, the Bank of America allows interested parties to contact their hotline to discuss HELOC by phone and online.
Online facilities are available at the time to accommodate borrowers. Aside from the Bank of America, other lenders to check out are PenFed Credit Union, US Bank, PNC Bank, Connexus, SunTrust, Flagstar, Citi, and others.
Some of the necessary documentation needed to provide include bank statements, proof of income or copies of W-2 forms, assets and debts, proof of residence, and Social Security number.
Interest Rates
The interest rate for the home equity line of credit varies, depending on the loan amount and term. The average rate starts at 5.60 percent to 9.99 percent or higher, for a fixed-year HELOC. What you can do is to shop around and determine the interest rate for home equity line of credit.
Bottom Line
Applying for HELOC is simple as long as you know what you are dealing with. It is important to determine the value of your property and to weigh the options available in the market. Finally, gather all the necessary documentation to verify your financial capacity.
