Whether you need funds for a wedding, college tuition, home renovations, a vacation, or a second home, LendingTree’s network of lenders can help you secure a home equity line of credit (HELOC) with the most flexibility and the lowest rate and fees. Want to learn more about HELOCs? Let’s get started.
Loan-to-Value Ratio
You’ll need a loan-to-value ratio (LTV) of around 80 percent. Not sure? Use our calculator.
Income
You’ll need to show you have sufficient income to cover your mortgage payment and the new loan payment.
Strong Credit
Lenders want to know you have a history of paying your debts. Don’t know your score? Find out with LendingTree’s free credit score.
Debt-to-income ratio
Lenders also like to see a low ratio between your overall debts and your income. This is called debt-to-income ratio (DTI). If you’re not sure how, we can help you calculate your DTI.
Other Assets
Having additional assets, like a boat, car, rental property, or other investments, will help lenders feel more secure about lending money to you.
Try these calculations yourself!
Let’s take a look at how to determine how much equity you need to get a line of credit and how much you can borrow. Let’s assume your home is worth $250,000 and you have $150,000 left to pay on your mortgage. If the lender’s loan-to-value ratio is 80 percent, the maximum home equity loan you could qualify for is $50,000. Here’s how that figure is determined:
($250,000 X 0.8)
($200,000 – $150,000)
People use HELOCs for a variety of reasons. Some of these include paying for:
If you choose to use your home equity for one of these reasons, be certain it’s a good one. Using the equity in your home is not something that should be taken lightly, and you’ll end up paying interest and fees to do it.
Lower Costs
HELOCs usually have lower upfront costs compared to home equity loans.Lower Interest Rate
HELOCs allow you to borrow money at a lower interest rate than most credit cards.Lower Closing Costs
HELOCs usually have low or no closing costs.Tax Deductible
Interest paid on your HELOC may be tax deductible. Check with your accountant to be sure.Variable Interest Rate
HELOCs are an adjustable-rate mortgage. This means that your interest rate can go up or down. When it does, your payment will do the same. Some lenders offer interest rate caps, so you have a little more security knowing your rate can’t exceed a certain amount.Fees
Some banks charge fees if you don’t use your line of credit, close your line of credit early, or pay off your loan early.Minimums
Some lenders require that you borrow a minimum amount. Since you don’t want to pay interest on money you don’t really need, this can be a real drawback. Additionally, lenders may require you to withdrawal a minimum amount any time you make a draw. The same principle applies here. If you only need $500, but have to draw $1000, you’re paying more interest than needed.Debt
Just like credit cards, using a home equity line of credit can put you in debt, and it will eat up the equity in your home. So make sure you spend wisely.Here’s a few checklists to help you prepare for the application process, as well as some questions you should be asking as you go through the process of getting a HELOC.
Before you apply for your loan, make sure you’ve gathered the following information:
You may need to be ready to have access to information on any other debts you have, like your student loan, car loan, or credit cards.
Once you’ve prepared by gathering the information above, you’re ready to apply. Here’s a breakdown of the steps you need to apply for a home equity line of credit.
Contact Lenders – Because the rates and fees for your HELOC will vary, you’ll want to contact a few lenders to compare loans and make sure you’re getting the best deal.
Compare Offers – Once you have offers from three or more lenders, sit down with the offers and look them over. It’s rarely an apples-to-apples comparison, so use one of our loan comparison tools to help.
Apply Online – Once you’ve made a decision, fill out the application. Most banks today will allow you to apply for your loan online. This makes filling in your information a breeze, and if you happened to miss gathering a document, you’ll have time to get it.
Property Evaluation – Most lenders may require a property appraisal and inspection prior to approving your loan. This will be an out-of-pocket expense.
Approval – Once you’re approved, your lender will ask for additional information to move the process along.
You may need to be ready to have access to information on any other debts you have, like your student loan, car loan, or credit cards.
Here are eight questions to ask your lender before you commit to a home equity line of credit.
Contact Lenders – Because the rates and fees for your HELOC will vary, you’ll want to contact a few lenders to compare loans and make sure you’re getting the best deal.
Intro Rate – Is there an introductory rate and how long does it last?
Interest Rate – What is the interest rate I’ll be paying?
Maximum Interest Rate Cap – Is there cap on how high my interest rate can go and what is it?
Draw Period – How long does the draw period last?
Borrowed Balance – Is there an overall minimum amount I have to borrow?
Minimum Withdrawal – Is there a minimum amount of money I have to draw each time I want to access my line of credit?
Inactivity Fees – Are there inactivity fees I’ll have to pay if I don’t make a draw?
Prepayment Penalties – Are there penalties for paying off the loan early?
Balloon Payment – Is there a large, one-time payment at the end of the loan term?