Home Equity Line Of Credit (HELOC)

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a type of second mortgage that allows homeowners and investors to borrow money against the equity they have in their property owned and receive that money as a line of credit. Borrowers can use HELOC funds for a variety of purposes, including home improvements, education and the consolidation of high-interest credit card debt. HELOCs offer investors a diversified and attractive risk-adjusted return in today’s market environment. Access high-quality assets via flexible investment opportunities catered to your institution’s financial goals.

How does a HELOC work?

Much like a credit card that allows you to borrow against your spending limit as often as needed, a HELOC gives you the flexibility to borrow against your home equity, repay and repeat. Most HELOCs have adjustable interest rates. This means that as baseline interest rates go up or down, the interest rate on your HELOC will adjust, too. HELOC’s rates are determined from an index rate (Typically the Prime Rate) and then add a markup depending on your credit profile. Generally, the higher your credit score, the lower the markup. That markup is called the margin.

Qualifying for a home equity line of credit is a lot like qualifying for a mortgage refinance. You’ll have to meet certain requirements before you can get this type of loan. The exact HELOC requirements will vary from lender to lender, but you typically need:

• Reliable income: Many lenders will need proof of income to confirm you’ll be able to pay off your loan payments.
• Good credit: A credit score above the mid-600s will likely approve you for a loan. A credit score above 700 is considered ideal.
• Qualifying amount of equity in your home: You should have at least 20% home equity.
• Responsible payment history: Lenders may evaluate your previous payment history to make sure you haven’t made any late payments in the past.
• A low debt-to-income ratio (DTI): The lower your DTI, the better. Discuss with your lender what their qualifying DTI ratios are to potentially receive a loan.

Overall, HELOC requirements are similar to the requirements to refinance a mortgage. Make sure you review each to get the best understanding of the options available to you.

The Parham Team believes in educating and engaging our customers throughout the loan process. We look forward to hearing from you to begin that process. Contact us today at 855-326-6802 or schedule a call with a Loan Specialist.

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