When thinking about ways to find the money for home improvements and repairs, educational costs, or even debt repayment – a home equity line of credit can be there to help.
When the amount you owe on your mortgage is less than the value of your home, you have equity. You can unlock that equity through a home equity line of credit or loan.
The advantage of a home equity line of credit is that it allows you to draw from a single source of funds, at will, with a long-term repayment schedule. In comparison, a home equity loan would be dispersed to you in one lump sum with a fixed repayment schedule.
Depending on your specific funding needs, both home equity options can be helpful. But, for now, let’s take a closer look at the home equity line of credit requirements.
Understanding Home Equity Line of Credit Requirements
The terms surrounding specific home equity lines of credit can change from bank to bank. However, they often come with a standard set of requirements that need to be satisfied for a bank to approve a new line of credit for you.
Those HELOC requirements surround the current equity in your home, personal income, debt history, and your current credit score.
Existing Equity in Your Home
As you know, equity is the difference in the value of your home vs. the amount owed on your mortgage. To lenders, this is known as the loan-to-value ratio. The LTV for most HELOCs is required to be at least 15% in most cases.
By understanding the loan-to-value ratio of your home and mortgage, you can estimate the amount of your credit line. For example, lenders typically won’t offer you a credit line greater than 85% of your home’s value.
Sufficient Employment or Investment Income
As with most types of credit lines and loans, a bank or lender wants to know if you will be able to repay them. So not only will your income determine if you can repay a line of credit, but it can determine the size of the line of credit offered, too. Not to mention the home equity line of credit rates for borrowing.
You will want to have the right documents available to verify your income before applying for a HELOC. We can also help you with more frequently asked questions directly from the people we work with.
Debt Repayment History
A HELOC lender will be more likely to take the risk of giving you credit if you have a clean history of debt repayment. Conversely, a lack of repayment history or a history of late payments will affect a lender’s final decision and possibly the rate of your line of credit.
A HELOC will put extra risk on the lender to repay the loan if you default since they are first in line to repay if you can’t. Therefore, a home equity line of credit is not a low-risk credit solution.
Your Current Credit Score
If you’re looking for a HELOC, then you are probably familiar with credit reports and scores. A higher credit score is associated with a cleaner credit report and more favorable credit line approvals and rates.
A credit score of 700 or above will usually get you the HELOC you require. However, depending on your credit history, scores between 600 and 700 may work under certain terms and conditions with your lender.
Get Expert Help When Applying for a Home Equity Line of Credit
If you are confident that you can meet the home equity line of credit requirements above, then let Solidify Mortgage Advisors help you with your application process. With a team of experts who have access to over 60 banks and lenders, we can help you find the best terms for your next home equity line of credit.
With simple, transparent mortgage loan services, we keep you informed every step of the way. So take a closer look at the services we provide, and please get in touch with us when you are ready to discuss your HELOC options.
We look forward to speaking with you.
