Home Equity Line of Credit (HELOC) For Cash & Reduced Debt Interest
A Home Equity Line of Credit (HELOC) is a type of revolving credit that is secured by the equity in a homeowner’s primary residence. A homeowner will utilize the funds from a HELOC for whatever purpose they choose, such as home improvements, debt consolidation, education expenses, or emergency funds.
How Does A HELOC Work?
The lender will assess the value of the property, along with the outstanding mortgage balance and offer a credit line for the difference. Based on market conditions, credit score, and other factors they may not offer a line for the full remainder of value.
The homeowner can then draw on that line of credit as needed, up to the limit established by the lender. Interest is only charged on the amount that is taken by the borrower, not the full line available. Interest rates on HELOCs tend to be variable and therefore come with more risk of increased payment amount if interest rates rise. In addition, failure to repay your HELOC could result in foreclosure on your property.
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Is There A Required Credit Score?
A decent credit score is preferred, typically at 620 or higher.
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Can I get a HELOC if I already have debt? (Debt To Income Ratio)
A DTI of 43% or lower is generally what lenders will be looking for in potential borrowers
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How much equity is needed to get a HELOC?
The home equity value will typically need to be at least 30% of the homes total value.
What to expect when applying for a HELOC?
Getting approved for a HELOC is getting approved for a second mortgage, so expect the same amount of paperwork – and approximately 1-2 weeks to get approval. There are typically no closing costs, and cost less upfront than refinancing.
With the risk of a foreclosure on the home, if the repayment is not made in full at the end of the term, lenders will be fairly strict with the requirements to get approved.
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