Getting A Home Equity Line Of Credit (HELOC)
A Home Equity Line Of Credit (HELOC) is a type of loan offered by credit unions, banks, mortgage companies, and some online lenders. Each lender has a unique set of qualifying requirements that a borrower must meet to be approved for the loan.
Applying for a HELOC is similar to applying for any other kind of loan, and will require the borrower to provide the lender with W2s/1099s pay stubs, tax returns, and other documentation.
Getting approved for a HELOC also requires a minimum credit score of 620, but again, this requirement will vary by lender.
HELOCs are an excellent tool to access funds for making home improvements, paying off debt, and more. But how do you get one?
At Credit Union of Southern California (CU SoCal), we make getting a Home Equity Line of Credit (HELOC) easier.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
What to learn about how to apply for a HELOC? Read on to learn more!
Get Started on Your Home Equity Line of Credit (HELOC)
What Is A HELOC?
A Home Equity Line of Credit (HELOC) is a type of “revolving” credit that is secured by the equity in your home and features a credit limit and a variable interest rate.
Credit cards are another type of revolving credit, but they tend to come with higher interest rates than HELOCs, which makes them much more expensive when borrowing large amounts of money.
Like credit cards, HELOCs can be used for any type of expense, including home renovations, buying a second home or investment rental property, paying for college tuition, and paying-off high interest debt.
HELOCs are a form of “secured loan,” meaning that lenders require that the borrower put up a security or collateral (in this case the borrower’s home) to secure the loan.
While HELOCs are an excellent way to get access to funds, keep in mind that because your home is used as collateral, if you default on the loan, the lender has legal recourse.
To learn more read, “
What Is a HELOC and How Does it Work?”
HELOC Eligibility Requirements
Applying for a HELOC starts by talking to some lenders (including CU SoCal) about HELOC options. Each lender will have a unique set of qualifying requirements that a borrower must meet to be approved for a loan.
Here are some general HELOC requirements:
- A minimum credit score of 660.
- Proof of income and employment.
- A new appraisal to determine the current value of your home.
- Up to 85% Loan-to-Value (LTV).
- One term you’ve likely seen when you applied for your mortgage and will see when applying for a HELOC is Loan-to-Value (LTV).
LTV in a HELOC application refers to a comparison of your mortgage loan balance and the current appraised value of your home.
Some lenders will get this ratio based on Combined Loan-to-Value (CLTV) by combining the amount owed on the mortgage and the desired HELOC amount to come up with your total debt.
How much equity do you need for a HELOC? Credit unions and banks will generally lend from 70% to 85% LTV.
For example, lets say a home appraises for $600,000. If the current mortgage is $250,000, and the desired HELOC will be for $150,000, then the total debt owed will be $400,000.
If there are other loan balances, these will be added as well. CLTV is calculated by dividing the sum of the debt $400,000 by the appraised value of the property $600,000. The result is 0.6 or 60% CLTV.
To calculate home equity:
Current appraised value – Mortgage balance = Home Equity
$600,000 - $250,000 = $350,000
For more details, read: “
HELOC Eligibility Requirements and Qualifications.”
How To Apply For A HELOC
Although HELOC interest rates and terms will vary by lender, all lenders will require that borrowers provide certain documentation to apply for the loan. Use this list to prepare to apply:
Check Your Credit Score. Many lenders have a HELOC credit score requirement in the 660-680 range.
Calculate Your Home Equity. Lenders generally require 15-20% equity in the home that will be used to secure the loan
. Equity is the amount of the home you own.
To calculate equity, subtract the mortgage amount from the appraised or market value amount.
For example: Appraised value $600,000 – Amount owed on mortgage $250,000 = $350,000 equity. Divide the equity ($350,000) by the home value ($600,000), which is 58% equity. (A homeowner who doesn’t have a mortgage loan has 100% equity in their home.)
Gather The Right Documents. Your lender will give you a similar checklist of the documents needed to apply.
Pay Stubs. Depending on type of employment, the lender may expect to see paystubs as proof of income.
W-2s/1099s. Individuals who have an employer will show W-2s. Self-employed individuals will need to provide 1099s.
K-1s. Business owners and partners should be ready to provide a copy of their IRS Schedule K-1 (Form 1065). The K-1 reports your share of the partnership's income, deductions, credits, etc.
Tax Returns. Generally, two years of tax returns are required.
Bank and Investment Statements. These can indicate additional income. Or, for individuals who are retired with no employment income, these accounts can show the ability to repay the loan based on earned interest.
Mortgage Statements. Providing your mortgage statements will show the lender how much you still owe on your current mortgage, so your equity can be calculated.
Proof Of Insurance. You’ll need to show proof that you have a homeowner’s insurance policy.
Home Appraisal. An appraisal may be required to determine the home’s market value. This will help the lender determine the Loan-to-Value (LTV) ratio. His will determine how much you can borrow.
Shop Different Lenders. Start by talking to a loan representative at your current mortgage lender. This could save you time and money because your current lender will have much of your personal information still on file, and they may be able to provide you with a better rate due to your existing relationship. Still, it’s smart to shop a couple of different lenders to ensure you’re getting the best rate and terms.
Apply In-Person Or Online. These days, all lending institutions provide online and in-person application options.
CU SoCal HELOC
CU SoCal offers an interest-only HELOC, so you pay only the interest due each month, giving you the flexibility to keep payments low during the 10-year draw period of your loan. We offer the choice of either a lump-sum loan or a revolving credit line that can be used over and over again.
Other great HELOC features include:
- Access up to 80% of your home's equity.
- No points.
- No appraisal fees for single unit loans.
- No annual fee.
- No closing costs.
- Loan limit up to $250,000.
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including
HELOCs,
car loans,
personal loans,
mortgages,
credit cards, and other banking products, to those who live, work, worship, or attend school in
Orange County,
Los Angeles County,
Riverside County, and
San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Apply for a HELOC today!
HELOC FAQs
What Is A HELOC
A Home Equity Line of Credit (HELOC) is a type of “revolving” credit that is provided by a lender, has a credit limit, a variable interest rate, and is secured by the equity in a home.
To learn more read, “
What Is a HELOC and How Does it Work?”
Is Getting A HELOC Worth It?
A HELOC can be a great way to access the full value of your home to get the money you need to make renovations or other large purchases. The maximum HELOC amount you can borrow will be based on the lender’s loan limit, your home equity, credit score, and other factors.
For homeowners who can easily meet these requirements, then getting a HELOC can be a great option for getting cash. However, there are caveats to consider, like a variable interest rate (which means unpredictable monthly payments on the amount you owe).
To learn more read, “
How Much HELOC Can I Get?”
What Can A HELOC Be Used For?
HELOC funds can be used for any purpose.
Some of the best ways to use a HELOC include home improvements, debt consolidation, college expenses, emergency expenses, making investments including putting money down on an investment property or second home, paying for a wedding, business expenses.
To learn more read “
What Can You Use A HELOC For?”
Is A HELOC Tax Deductible?HELOC interest is tax deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan.
To learn more read, “
Is a HELOC Tax Deductible?”
Can You Refinance a HELOC?
You may be able to refinance a HELOC to a new HELOC, if the lender allows. Other options for getting out of a HELOC include paying it off entirely with a cash-out refinance or refinancing to a fixed-rate home equity loan.
You may also want to consider refinancing your HELOC and mortgage to a new mortgage. If interest rates are lower than your current mortgage interest rate, consider refinancing with cash-out to pay off your HELOC. If the current interest rate is higher than your current mortgage interest rate then it doesn’t pay to refinance to a higher rate just to pay off the HELOC.
Learn more by reading, “
Can You Refinance A HELOC?”
Does a HELOC Affect Your Credit Score?
Because a HELOC is a type of revolving credit, similar to a credit card, it won’t affect your credit mix, which makes up just 10% of your total credit score. However, applying for a HELOC will require a "hard inquiry" by the lender, which typically lowers your credit for a short period of time.
To learn more about how a HELOC can affect your credit score, read “
How Does A Home Equity Line Of Credit Affect Your Credit Score?”
Can I Use A HELOC To Pay Off My Mortgage?
While a HELOC can save you money in interest payments versus paying a mortgage over the course of 15 or 30 years, it’s important to note that HELOCs have a variable interest rate, which means there may be months when your HELOC interest rate will be higher than what you were paying on your mortgage.
To learn more read, “
Using A HELOC To Pay Off Your Mortgage.”
HELOC vs Home Equity Loan
Although similar, HELOCs and Home Equity Loans have some key differences when it comes to utilizing home equity.
A HELOC grants homeowners access to a certain amount of money during a draw period and typically has a variable interest rate that’s charged only against the amount of money that’s withdrawn.
A home equity loan provides the loan amount to the borrower in a lump sum, which they then need to pay interest against. Most home equity loans have a fixed interest rate that’s charged on the entire lump sum amount, but home loans are also available with variable interest rates as well.
To learn more read, “
HELOC vs. Home Equity Loan.”
HELOC vs Cash Out Refinance
The most distinguishing characteristic of a Home Equity Line of Credit (HELOC) is that it is a line of credit. This allows borrowers to withdraw any amount up to the credit limit designated by the lender. You’ll pay interest only on the amount you borrow, not on the full credit line. Interest is paid at a variable rate during a draw period of typically 10 years. When the draw period ends the interest rate may adjust to a fixed rate and monthly payments will include both principal and interest on the outstanding balance.
Cash-out refinancing is when a homeowner refinances their mortgage to a new mortgage (typically at a lower interest) and borrowing more than what is owed on the current mortgage. The first mortgage is paid off in this process and the homeowner gets a lump-sum payout of the extra cash amount at closing.
The interest paid will be on the entire new mortgage loan amount.
To learn more read, “HELOC vs. Cash-Out Refinance.”
Ready for a HELOC? CU SoCal offers some of the best rates on home equity loans and lines of credit.
Get Started on Your Home Equity Line of Credit (HELOC)