A HELOC, or a home equity line of credit, is a type of revolving loan that is secured against the value of your home. You may borrow and reborrow funds long as it is within your credit limit and only pay it back in full when you reach the repayment period.
Types of HELOC
Home equity lines of credit come in 2 forms, the common one is as a stand-alone debt and the other is combined with mortgage, though many may not be aware of this.
HELOCs that are combined with mortgages are typically only offered by huge financial institutions under the term “readvanceable mortgage”. We will focus on a HELOC as a stand-alone debt product in this writeup as that is the type of HELOC that is offered by private mortgage lenders and other private lenders; hence, also easier to qualify for as opposed to debt products offered by banks and other huge financial institutions.
HELOC as a Stand-Alone Debt Product
A home equity line of credit that is backed by your home equity and not related to your mortgage is what most of our clients qualify for. With this type of HELOC, you can gain access to as much as 65% of your house’s market value and you’ll be in better control of payments.
Home Equity Loan VS Home Equity Line of Credit
A HELOC gives you access to a predetermined amount for a defined length of time whereas a home equity loan is given as a lump sum. Interest is paid for the whole amount for a home equity loan; on the other hand, you only pay interest for the exact amount you used with a HELOC.
Qualifying for a HELOC
Qualifying for a home equity loan from private lenders is a lot easier than qualifying for a HELOC from banks and other huge financial institutions. Typically, you’ll need the following to qualify for a HELOC:
- Your financial history records
- Proof of employment or income
- An acceptable credit score
- A reasonable amount of debt for your income
- Other documents or proof that you can pay future debt
- Possibly help from a lawyer
When to Get a HELOC
Ideally speaking , tapping your home equity by using a HELOC should only be used for funding projects that improve your home and increase its value, or for funding self improvement measures such as in the case if paying for advanced education.
Remember that a HELOC is still a type of loan and backed by your home. Using a HELOC for frivolous things could spell financial disaster if you’re not careful. To make sure that you’re getting a home equity line of credit for the right reasons, be sure to talk to mortgage professionals who can walk you through the process of getting a HELOC as well as assess your financial compatibility for this type of home loan. It pays to arm yourself with knowledge and contact mortgage professionals with a long track record to help you with understanding HELOCs and processing your HELOC application. Contact us as soon as possible if you have questions regarding getting a HELOC!