What is a Home Equity Line of Credit?
What does home equity line of credit or HELOC mean? In the articles, you can learn more about home equity of credit or HELOC. In the meant time, a home equity line of credit allows known as HELOC is a term that enables you to borrow money that complies with the value of your home to access cash as needed. HELOC or home equity line of credit is another type of mortgage that offers you money or allows you to borrow money based on the value of your home.
This enables you to benefit from your home equity line of credit where you can repay all or some monthly, this is similar to a credit card. HELOC allows you to borrow money against your equity. It is calculated by subtracting the home value from the amount owed on your mortgage. If you own your home outright this provide more advantage to get a HELCO.
How Does a HELCO Works?
Similar to a credit card which enables you to borrow money even with a low spending limit. As for the home equity line of credit, the offers you a flexible way to borrow money against your home equity, repay and repeat. Keep in mind, you need to know that HELOC interest rates are adjustable, meaning that the interest rate can go up and down. Therefore, the interest rate on HELOC will be adjustable as well.
However, to set up your rate, the lender first begins with an index rate, afterward add a markup based on your credit profile. Based on statistics, a high credit score tends to lower your markup. The markup can also be called the margin. This is more of the reason why you need to see the amount before signing up for HELOC.
The requirements for a home equity line of credit actually vary on lenders. Generally, here is the following requirement you need to get a HELOC:
- A credit score of 620 or above.
- Debt to income ratio of either 40% or less.
- The home value should be at least 15% more than you owe.
That’s all. But keep in mind, there you might be asked to provide on requirement because lender requirements vary.
How to get a home equity line of credit
The procedure you need to follow to acquire a HELOC is similar to the process of you purchasing or refinancing a mortgage. Here are the following documentation and demonstration you’ll need to follow when getting a HELOC:
- First of all, use the HELOC calculator to determine if you have enough equality.
- Once you find the estimated about you can borrow, then you can look for HELOC lenders.
- Ensure you have the necessary documentation before applying.
- Once you have all the necessary, select the lender and apply.
Afterward, you can follow the instruction, where you will receive a disclosure document and you need to read them carefully. However, if you’re wondering how much I borrow, you need to under that the amount you can borrow from your home equity line of credit actually depends on the value of your home.