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Things to Think About When Applying for a Home Equity Line of Credit

A home equity line of credit allows you to tap into your home’s equity to pay for home improvement projects, a once in a lifetime vacation, medical bills, or almost anything else. 

You won’t have any problem finding a lender that offers home equity lines of credit. However, that doesn’t mean you should jump on the first deal you find. 

There’s a lot to think about before making a decision, with these five details among the most important:

1. Your Credit Score

Generally speaking, the higher your credit score the easier it is to secure a home equity line of credit. Also, a high score should help you obtain a competitive interest rate, which will save you money over the long run. 

2. Compare Interest Rates

Sticking with the theme of interest rates, it’s critical to compare a minimum of three lenders. You may find that one is much more competitive than the rest in regards to the rate they offer. 

Do yourself a favor and extend your search to include local banks, national banks, online lenders, and credit unions. This will give you peace of mind that you’ve done everything you can to find the lowest rate possible.

Tip: you don’t have to get your home equity line of credit from the same lender that issued your mortgage. They may end up offering you the best product, but don’t assume that this will hold true.

3. Don’t Forget About the Fees

Some lenders have more fees than others, so carefully check this before you sign on the dotted line. Some of the most common types of fees include:

  • Inactivity fees
  • Annual fees
  • Lender fees
  • Early termination fees 
  • Closing costs

Tip: don’t hesitate to negotiate fees with your chosen lender. 

4. Check Your Equity

Before you get too excited about a home equity line of credit, make sure you have enough equity in your home to qualify for the amount of money you need.

Keep in mind that lenders limit your home equity line of credit to 80 percent of the equity in your home. 

Tip: if a home equity line of credit doesn’t work for you, there are other options, such as a personal loan, to consider.

5. Timeline

How soon do you need the funds from your home equity line of credit? Is your lender able to comply? 

Start your search for a home equity line of credit well in advance of when you need the funds. Waiting too long may put you in a time crunch, which could force you to consider another option. 

Tip: talk to the lender upfront about how long it typically takes from application to approval to closing. 

Final Thoughts

If you’re interested in a home equity line of credit, keep these five details in mind. As you cross each one off your list, you’ll feel better about your ability to secure the line of credit that best matches your borrowing needs. 



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