With a home equity line of credit (HELOC), you can tap into the equity of your home. This provides access to funds that you can use for things such as home renovations, medical bills, travel, and pretty much anything else you can think of.
While there are many benefits of a HELOC, you shouldn’t apply until you’re familiar with the finer details and how they pertain to your particular situation.
Here are some questions you can answer to help clear the air:
1. Do you qualify?
This depends on a variety of factors, including but not always limited to the following:
- Credit history
- Credit score
- Amount of equity in your home
Above all else, you can only qualify for a HELOC if you have equity in your home. This is the whole purpose of a HELOC.
2. How much can you borrow?
Generally, you can borrow up to 80 or 90 percent of the value of your home, minus the amount that you owe.
This varies from lender to lender, so shop around to see what’s available to you. You may find that one lender is able to offer you access to a larger line of credit (if that’s important to you).
3. What are the terms and conditions?
Most people begin by focusing on the interest rate. This is important as it’ll impact your monthly payment during the draw period (as long as you access the line of credit).
Along with this, there are two questions to ask each lender you speak with:
- What is the draw period? This is the amount of time that you have access to the money.
- What is the repayment period? Once the draw period comes to completion, you begin to make principal and interest payments until the balance of the loan is paid off.
4. What type of documentation is required?
Every lender has its own requirements, but some of the documentation you should gather include:
- Most recent tax return
- Paystubs for the last 30 days
- Mortgage statement
- Bank account statements
- Proof of home insurance
The more of these documents you collect upfront, the less work you’ll have when it comes time to apply for a line of credit.
5. Are there closing costs associated with a HELOC?
There can be closing costs associated with a HELOC, such as those for processing your application and loan, as well as an appraisal fee.
This is a good question to ask lenders as you compare your options.
Final Thoughts on Applying for a HELOC
By answering these questions, you’ll gain a better understanding of what a home equity line of credit has to offer. This will help you decide if it suits your requirements.
If you’re interested in learning more, visit our search page. Either way, you’re sure to find what you’re looking for.