Here we’ll give you a basic run-down on the requirements associated with HELOC loans, also known as home equity line of credit loans.
What is a HELOC Loan?
A HELOC loan is essentially a loan taken out in the form of a line of credit. This means that rather than taking out a loan and receiving a fixed sum of cash, the person taking out the loan has access to money that they can spend as needed up to a maximum amount. The loan uses your home equity as collateral. The HELOC has a set period where the loan can be drawn against and usually only interest must be paid, and then another period where the loan must be paid off. Interest rates, draw periods, and payoff periods vary.
Requirements for HELOC Loans
These will vary from one bank to the next, but here are some general ideas of what most of these loans require and a general idea of terms offered in most HELOCs:
- Lend 80% or more of the equity you have in your home
- 12 months or more of positive mortgage history
- Sufficient income to pay back loan
- A credit score of more than 620, ideally more like 740 to procure the best terms available
- Debt to income ratio of 41% or less
Why Do People Get Rejected for HELOCs?
A credit history that isn’t ideal is one of the most common reasons people get turned down for HELOC loans. This could mean that your overall credit score is low, or that you owe too much to too many people so that your debt to income ratio is not ideal. You could also be turned down if you’ve filed for bankruptcy at some point in the past. Not having enough equity built up in your home is another common reason people don’t qualify.
Alternatives to HELOC Loans
There are definitely alternatives to HELOC loans, but you’ve got to keep in mind that with the most common alternatives, the requirements are pretty similar.
You could refinance your mortgage to get cash out of your equity. This basically means you’d refinance more than the amount you currently owe on the home and keep the cash.
EasyKnock’s Sell and Stay program is an alternative way to access your equity. While you’re technically selling your home, it can provide you access to all your home equity while continuing to live in your home.
You also might opt for a personal loan, whether that’s secured against some collateral or unsecured. The downside to this method is that you won’t get the tax benefits associated with paying interest on a home loan of whatever variety.
If you’re really desperate, you could take out cash advances on credit cards, but the interest rates for this option can be quite prohibitive.
Don’t Let HELOC Requirements Keep You from Your Equity
Oftentimes, the instances when people need to access their equity the most are when their credit has already been damaged. There are other ways you can gain access to your home equity, even if your credit history is not-so-spotless, like Sell and Stay, where your credit history is almost irrelevant.