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A home equity line of credit (HELOC) offers flexibility and convenience

A home equity line of credit is one of the most convenient and sensible financing solutions available to homeowners when it comes to funding home improvement projects. A home equity line of credit (HELOC) is a line of credit granted to you by a lending institution in which the collateral is the equity you’ve built up in your home. Once your credit limit has been determined, you can draw from your HELOC at your discretion to pay for whatever project you’ve got in mind.

How do I obtain a HELOC?

You need home equity to obtain a HELOC. When you apply for your home equity line of credit your lender will take a percentage of your home’s worth (say 80%) and subtract from that figure what you still owe on your mortgage, arriving at the credit limit you qualify for.

Sample Line of Credit Calcualation

If you’ve got a $200,000 home that you still owe $100,000 on, then by the above calculations you’d be approved for a HELOC with a credit limit of $60,000. Once your HELOC has been established, you’ll typically be able to borrow up to your credit limit whenever you want, using designated checks.

Why does a HELOC make sense?

HELOC’s can be a smart option for home improvement financing for many reasons. For one, there’s no worrying about whether you’ll be approved or not, or how much credit you’ll be granted. These lines of credit are based on the equity you’ve built up in your home, taking away the uncertainty and guesswork that comes hand-in-hand with applying for other types of financing.

Even more attractive, however, is the fact that since it’s a line of credit as opposed to a loan, you’ll only owe what you spend. If you’re approved for a $60,000 line of credit and decide on a $10,000 bathroom remodel, you don’t necessarily have to borrow (and pay interest on) the additional $50,000.

You control the funds

The other benefit of a HELOC is that you control the funds and distribution instead of a lender. You won’t have to wait for lender approval before moving on with home improvement projects, and you won’t have contractors holding up work waiting for payment. You make all the calls yourself, keeping your home improvement project on the ball.

Besides that, HELOCs offer you the benefit of using your line of credit for other unforeseen expenses as well. Other construction loans and lines of credit are carefully managed by the lender and funds are only dispensed to contractors. With a HELOC, you can pay off medical bills or pay college tuition if need be. Beware of this course of action, however. With any line of credit, it’s best to use it sparingly, and in this case for what you intended it: your home improvement project.

For home improvement HELOC can be a good option

For all of these reasons, a HELOC can be a good option for many borrowers. Whether you’re looking to significantly add to the square footage of your home, want to remodel your kitchen, or just plan to update the den, there are few home equity options that offer the convenience, flexibility, and control of a home equity line of credit.

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