What is a HELOC?
A home equity line of credit, or HELOC, allows you access to the value of your home without selling it. A HELOC is an attractive option to many borrowers as it allows them to use funds as expenses arise on a rolling basis, up to a certain limit. Since you are borrowing against it, a HELOC will use your home as collateral.
While many borrowers tend to use their HELOC for home improvements, the funds they receive can be used for a number of expenses like schooling, unexpected bills or consolidating debt.
To see if you qualify for a HELOC, or to know how much you could borrow, talk with a trusted lender today!
How does a HELOC work?
A typical HELOC will open a line of credit based on the equity you’ve built up in your home. You can draw what you need from this line up to your approved limit. After this draw period, during which you will typically only need to make interest payments, you will have a payment period. During your payment period, you can no longer draw on your account and will have to make payments on the principal loan and interest.
Our HELOC gives you your total loan amount upfront. Like a typical HELOC, your loan amount will be based on the home equity you’ve built up. As you start repaying your loan, you will be able to make additional draws on your line of credit.
If you don’t own your home outright, a HELOC will work as a second mortgage, meaning you will have to make monthly payments on both your original mortgage and your HELOC.
HELOC requirements
To qualify for a HELOC, you will need to meet credit score, debt-to-income (DTI) ratio and home equity percentage requirements. Exact requirements for a HELOC could vary depending on the lender you select.
Some guidelines for our HELOC include a credit score of at least 640, a DTI ratio of no more than 50% and home equity of at least 15%. Higher credit scores, greater home equity percentage and lower DTI ratio could get you more favorable loan terms or allow you to borrow more.
How much can you borrow with a HELOC?
The amount you are able to borrow will depend on your home’s value and the equity you have built up in it. Lenders let you borrow a percentage of your home’s value based on the amount you still owe on your mortgage. Most lenders are unlikely to give you the entirety of your home equity.
HELOC vs. cash-out refinance
A cash-out refinance* will take the place of your mortgage with a larger loan, giving you the difference in cash. Similar to a HELOC, a cash-out refinance allows you access to the equity built in your home that you can use at your discretion.
Since you could end up with a larger mortgage, your monthly payments might increase with a cash-out refinance. Your cash-out refinance will essentially have you starting over in your mortgage with new terms over a potentially longer time.
HELOC vs. personal loan
Personal loans, like our HELOCs, will give you an upfront lump sum. The difference is that your personal loan does not let you take additional draws. With a personal loan, you can decide between a secured loan with provided collateral, or an unsecured loan without collateral at higher interest rates and less favorable terms.
You will have monthly repayments on your personal loan and interest. Some of the requirements that come with personal loans are good credit and a low debt-to-income ratio.
How to get a HELOC
The quickest and easiest way to get a HELOC and access your home’s equity is by talking with a lender.
When you meet with a lender, they will typically require a home appraisal to determine what your home is worth. Your borrowing power could increase with a good appraisal. Small home improvements or renovations before an appraisal might increase your home equity.
With a lender, you will fill out an application and submit documents such as your appraisal, tax returns and mortgage. After this, you will go through a closing process very similar to your original mortgage.
Access the value of your home through a HELOC today by connecting with a lender. Start here!
All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Owning does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error-free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Owning. Owning its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.
Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply.
Owning’s HELOC is a fixed-rate open-end product using your home as collateral. Not available in all states. Go to owning.com/HELOC for information including important property and borrower requirements and restrictions which impact rate and max available loan amount. Subject to approval.
*Using funds from a Cash-out Refinance to consolidate debt may result in the debt taking longer to pay off as it will be combined with borrower’s mortgage principle amount and will be paid off over the full loan term. Contact Owning for more information.