What is the process to apply for a HELOC?
Home equity line of credit, or HELOC, is a line of credit based on the value of your home. It is basically a second mortgage where you can use the money for any reason. It’s almost similar to a credit card, but instead of an open line of credit, you’re borrowing against the value of your home. A HELOC uses the equity in your home to provide you with funds for big purchases, paying down debt, or ongoing home improvement repairs. If you have a big ticket expense and need the funds to cover it then you may want to look into getting a HELOC, but what does the application process look like?
Learn more about how you can secure a HELOC for your next home improvement project or major expense, and then start your application today.
What does a home equity line of credit do?
A HELOC uses the equity in your home to allow you to draw a large or an ongoing amount of money based on the amount of equity you have. Because a home equity line of credit is based on the value of your home, you must have positive home equity in order to secure a HELOC from a lender. A home equity line of credit
How can I qualify for a HELOC?
To take advantage of the benefits of a home equity line of credit and start an application, you must have value in the equity of your home. Your home equity can be determined by the appraised value of your home subtracted from the amount you owe on the home. This is called your loan-to-value ratio (LTV).
Your LTV is what lenders use to determine if you qualify for a HELOC. A good LTV is 80% or less, though having a higher amount doesn’t mean you won’t be able to get the line of credit.
Are there requirements for a HELOC application?
Yes, there are. HELOC requirements depend on your lender. However, there are a few things that tend to be the same across the board. The general requirements for a HELOC are as follows:
● Positive home equity: Your lenders will ideally want your LTV to be around 80% or lower, having a lower LTV means better chances at getting a HELOC, though if your LTV is higher you may still be able to get the line of credit but with a higher interest rate.
● Low debt-to-income ratio (DTI): Lenders look at your DTI to better determine your financial ability to make payments on your HELOC. Your DTI is determined by adding up all of your monthly expenses (this includes homeowner association dues and your mortgage) and dividing it by your monthly income (this includes all money coming in monthly), you want this percentage to be low.
● Good credit*: Most lenders will want you to have a good or better credit score.
● Reliable payment history: Some lenders may take a closer look at your credit to determine if you have a good history of making payments on time. If your credit history shows a pattern of late payments and accounts in collection, they may see you as a higher risk to lend money to.
● Sufficient income: You may be required to provide proof of income via tax documents and pay stubs. Lenders do this to determine if you have the means of repaying the amount borrowed and how much of a line of credit they will make available to you.
How much can I borrow with a HELOC?
If you’re qualified for a HELOC, most lenders will let you borrow up to 80% of the equity in your home**. For example, if your home is valued at $380,000 and you have a mortgage loan of $220,000, then you have $160,000 in equity. 80% of this is $128,000.
What are the payments on a HELOC like?
HELOC payments are divided into two phrases. These are known as the draw period and the repayment period. The draw period is for 10 years. During the draw period, you are able to take money from the line of credit. Your monthly payments during the draw usually only covers the interest.
Our HELOC is fully drawn at the time of origination and payment is determined by the term (5-, 10-, 15-, or 30-year term) selected by the borrower. The draw period can be between 2-5 years depending on the term.
After the draw period, the repayment period begins. During this time you will not be able to withdraw money from the line of credit and your payments will include the principal and interest. HELOC rates are variable, so your monthly repayment can change throughout the life of the line of credit.
Where can I find an application for a home equity line of credit?
So let’s do a brief overview of where you'll likely need in order to apply for a HELOC:
- You have an LTV of 80% or less
- You have a debt-to-income under 40%
- You have a good or better credit score
- You have the funds to repay the amount you borrow
Now it is time to apply for your HELOC, the application process is similar to when you completed your mortgage application. You will have to provide information about the value of your home and other assets, your income with proof, and proof of identity. The team at Guaranteed Rate has developed an simple online application process that allows you to have money in your hand in a few days.***
Start your application today to get the line of credit your need for your next project or major expense.
* Guaranteed Rate does not provide credit counseling or credit repair services.
** Our loan amounts range from a minimum of $20,000 to a maximum of $400,000. For properties located in AK, the minimum loan amount is $25,001. Your maximum loan amount may be lower than $400,000 and will ultimately depend on your home value and equity at the time of application. We determine home value and resulting equity through independent data sources and automated valuation models.
*** Approval may be granted in five minutes but may be subject to verification of income and employment. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing. In addition, funding timelines may be longer if we cannot readily verify that your property is in at least average condition with no adverse external factors with a property condition report and may need to order a desktop appraisal to confirm the value of your property.
Guaranteed Rate home equity line of credit (HELOC) is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw. This product is currently not offered in the states of New York, Utah, Kentucky, South Carolina, Hawaii, Texas, West Virginia, Delaware and Maryland. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact Guaranteed Rate for more information and to discuss your individual circumstances. Restrictions Apply.