Are you looking to unlock the capital you have built up in your home? A Home Equity Line of Credit (HELOC) may be the right option for you. To qualify for a HELOC, you must have available capital in your home, which means that the amount you owe for your home must be less than the value of your home. Generally, you can borrow up to 85% of the value of your home minus the amount you owe. The requirements vary depending on the lender, but there are standard criteria that are needed to qualify for a HELOC or home equity loan.
Choosing the right home equity financing depends entirely on your unique situation. HELOCs will generally have lower interest rates and greater repayment flexibility, but if you need all the money at once, a home equity loan is better. If you're trying to decide, think about the purpose of the funding. Are you taking out a loan to have funds available as spending needs arise over time, or do you need a lump sum now to pay for something like a kitchen renovation? A HELOC is a type of second mortgage, meaning that you can get one even if you still have your first mortgage or main mortgage on the house.
To qualify for a HELOC, you'll need to provide financial documentation, such as W-2 forms and bank statements, that allow the lender to verify your income, assets, employment and credit ratings. You may be entitled to receive additional free credit reports under certain circumstances, such as after placing a fraud alert, becoming out of work or receiving public assistance, or if you have been denied credit or insurance in the past 60 days. In this type of financing, the homeowner applies for an open line of credit and can then borrow up to a fixed amount as needed. The standard HELOC guidelines for investment properties include a minimum credit score of 720 to 740 and a cash reserve test of at least 18 months. Because loans are guaranteed by your home, the interest rate is often lower compared to unsecured loan products, such as credit cards or personal loans. When you build up enough equity in your home, usually by paying off your mortgage or investing in home improvement projects, you can unlock your home's equity through a home equity loan or a home equity line of credit (HELOC).
When you apply for almost any loan, solid credit consultation will lower your credit rating by a few points, but only temporarily. During the drawing period, you can borrow funds up to a certain limit set by the lender, have a monthly balance and make minimum payments, just like a credit card. Place an alert on your credit reports to warn lenders that you may be a victim of fraud or be in active military service. A HELOC is a revolving line of credit that allows you to borrow from the capital you have accumulated in your home. If you find that your HELOC payments drain your finances, here are some ways you can refinance your HELOC. Home equity loans and HELOCs with bad credit will have higher interest rates and lower loan amounts, and may have shorter terms.
A credit score of 680 or higher will most likely qualify you for a loan, as long as you also meet the capital requirements, but most lenders prefer a credit score of at least 700.