Expectations When Applying For A HELOC
If you’re a homeowner, you’ve likely heard of the financial power of using the equity in your home. A home equity line of credit, commonly referred to as a HELOC, is a revolving line of credit where borrowers can take the available equity in their home as a means to tackle their financial goals. While there are times a HELOC may or may not be a good idea, home equity lines of credit can be a low-interest alternative to traditional personal loans and credit cards and can offer financial flexibility to homeowners.
If you’re considering a home equity line of credit, you must know the ins-and-outs of what is required before applying.
Available Equity In Your Home
The first requirement to consider is how much equity is available. As a rule of thumb, lenders require you to have at least 15% equity in your home in order to tap into it with a HELOC. To calculate how much equity is available in your home, take the remaining balance of what is currently owed on your first mortgage and subtract that from the current market value of your property.
Debt-To-Income Ratio (DTI)
Another requirement when considering a HELOC is your DTI, or debt-to-income ratio. Typically, when it comes to equity loan products, lenders require borrowers to have a DTI no greater than 50%.
Like all loan products, your credit history is key in qualifying and securing the best rates. In looking at what’s required for a HELOC, lenders commonly expect a minimum score above 630.
Additional Details May Be Needed
While we’ve covered the basics of what is required to qualify for a home equity line of credit, your lender may require you to present specific documentation with your application. Information such as your most recent tax returns, proof of income, and any recent mortgage statements could be required when applying.
Utilizing the available equity in your home may not be the right option for you and your goals, however, there are lending alternatives that may better suit your needs.
If you’re thinking now may be the best time to apply for a HELOC, our local team of mortgage specialists is here to help you get started today. Give us a call at 804-274-1200 or start your application online. We also have a simple “Ask Us Anything” form you can use to send us any questions you might have.
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