How can I reach my financial goals with a HELOC?
Homeowners looking to tap into home equity without selling their homes might want to consider getting a Home Equity Line of Credit.
A Home Equity Line of Credit, or HELOC, extends a credit line to borrowers based on the value they have built up in their homes. A HELOC will act as a first mortgage or, if you already have a home mortgage, a second mortgage. You do not need to provide collateral with a HELOC, as your home will be used for collateral.
With Rate’s HELOC, you will receive an upfront amount based on the equity in your home. When you begin repaying your HELOC, you will get the option to make additional draws on your line of credit.
To start gaining access to the home equity you have built up, talk with a lender today and find out what your HELOC would look like.
Using a HELOC to help reach financial goals
The HELOC funds you receive can be used in a number of ways depending on your needs. These are some of the popular HELOC strategies that can help you achieve your financial goals.
Invest in real estate
Investing in new real estate is one popular way to use a HELOC to help create equity. You could use your HELOC for down payment options on a rental or fix-and-flip property. A rental property could give you a stream of income that you can use to pay back your HELOC and build your savings. Buying a property to fix and flip could pay off your HELOC and get you a little extra.
Investing in real estate could also mean improving your current home. Any home improvements, especially those that enhance curb appeal, could increase the value of your home, leading to a higher return when you decide to sell your house.
Invest in your business
Whether you are trying to start a new business or are looking to pump more capital into an existing business, your HELOC could help. Traditional loans can be hard to obtain for your business ideas, which is why people turn to their home equity for funding. It is good to be aware that most businesses take years to see profits, so you may not see returns right away.
Consolidating debt
If you have debt from credit cards, student loans or car loans, the funds you receive from a HELOC can be used to pay it off. This will consolidate your debts into one loan. If you have high-interest debts, consolidating them under a HELOC is one way to save money and potentially reduce your monthly payments.
Pay for education expenses
With interest rates often lower than student loans, a HELOC is a great way to invest in your child’s tuition or your own future education. In many cases, continuing education could lead to career advancements and enhanced earning potential, which would make using a HELOC this way a worthwhile investment.
Build an emergency fund
While you can’t predict emergencies, you can prepare for them. Money from your HELOC could add to a safety net. While this option might not give you the positive returns that other options may, it can give you peace of mind when addressing unforeseen bills and repairs.
Requirements to access your HELOC
If you are looking to use your HELOC to help reach your financial goals, you will want to make sure you meet the requirements. Some of the requirements that lenders will typically look for when you apply for a HELOC are:
- Minimum FICO score requirements
- At least 20% equity in your home, giving you a loan-to-value ratio of 80%
- A debt-to-income ratio under 43%
The exact requirement for your HELOC will be determined by the lender you choose.
What happens if you miss your HELOC payments?
Since your home is used as collateral for your HELOC, missing payments could potentially lead to lenders foreclosing on your home. Missed payments might also damage your credit score, which could make it harder to obtain loans in the future.
Before taking out a HELOC, make sure you know the risks and have planned for them.
How can I start the HELOC application process?
To start your HELOC application process, talk with a lender to make sure you meet all of their requirements. Your lender can also show you what the terms and rates of your HELOC will look like.
After you have met requirements and discussed the terms of your HELOC, most lenders will require an appraisal to determine the value of your home. A positive home appraisal could increase your borrowing power. So, small improvements or renovations before the appraisal could be beneficial for your HELOC.
Your last step in the HELOC process will be to fill out the application and submit everything needed. Your closing process will be similar to getting a mortgage.
If you are ready to start building equity with your HELOC, talk with a Rate mortgage expert and apply now!
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. Restrictions may apply.
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. Rate 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 Rate. Rate 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.
