How to Qualify For a Home Equity Line Of Credit

If you are one of those who wonder, “How do I qualify for a home equity loan or line of credit?” here is some piece of information that you may find useful. While home equity loans (HELs) could be accessed in lump sum amounts, home equity lines of credit (HELOCs) are revolving credit lines. Both these home equity based credit services which have lower interest rates and can be effectively utilized for variety of purposes like house improvements, paying children’s education fees or medical bills, purchasing new or used cars, etc.

Leading mortgage loan providers, banks and credit unions provide HELs and HELOCs but here we limit ourselves to getting a HELOC approved. If you have decided to apply for Home Equity Line of Credit, it could be vital for you to follow a systematic approach as mentioned below:

  • To enhance chances of obtaining a HELOC approval, you need to make sure that the total of your monthly mortgage payments, homeowner and mortgage insurance, property taxes as well as HELOC payments is less than 28% of your total household income. Make sure that you are able to satisfy this criterion.
  • To qualify for the best HELOC interest rates, review current status of your credit profile by getting free annual copy of your credit report from the 3 major credit bureaus in the country. Identify if there are any errors so that you can get them removed before approaching various lenders.
  • Obtain free non-binding quotes from several different HELOC providers and compare them in detail by using an online mortgage loan calculator. Check interest rates and terms, APRs as well as fees charged by mortgage loan dealers, the task could be complicated and confusing but with expert help it will be easier.
  • Once you have identified the right type of HELOC lender for your circumstances, gather necessary documents like copies of some very recent paystubs, bank statements, mortgage statement, last 2 years’ W-forms and income tax returns that will be required to be submitted along with your HELOC application to loan dealer.
  • Majority of the HELOC lenders will verify that there is at least 20% equity built up in your house so get an appraisal done to ascertain that this condition is being met. If value of your home has increased by 20% ever since you bought it, you can expect favourable result.

4 Important Tips To Qualify For A Home Equity Line Of Credit With Bad Credit

At MortgagRefinance101, we educate people how to qualify for a home equity line of credit with bad credit online through a simple, easy and hassle-free process. To that effect, if you are thinking of applying for a HELOC, here are few guidelines which you may follow to make your task easy.

  • For determining whether you are an ideal candidate for HELOC, evaluate your debt situation for ensuring that monthly payments including HELOC instalments are within 28% of your household income every month. Other than mortgage debt, also include other dues like credit card debts, car loans or student loans for calculations.
  • To improve probability of qualifying for an affordable HELOC interest rate, you must ensure that you have a credit score that is at least 620 or above. If your credit rating is below 500 then obtaining a HELOC approval could be extremely difficult. In such cases, you must repair credit first.
  • Apply for multiple free proposals and compare interest rates, APRs, terms as well as fees charged by various HELOC lenders. Such a proposition will enable you to identify the correct loan dealer for your specific financial and credit situation. With our expert assistance online, you can save lot of time and money.
  • It could be better if you seek services form HELOC lender’s appraiser for appraising existing home value to ensure that there is at least 20% equity in the house. If you meet this condition stipulated by lenders then you can expect to get favourable response from almost any HELOC lender.

Things That You Need To Know When Trying To Get A HELOC With Bad Credit

While learning how to qualify for a home equity line of credit with bad credit score, you can take the below mentioned aspects into consideration.

  • Qualifying – For obtaining a HELOC approval, there has to be some amount of equity built in your home. Besides, most lenders will also verify income documents, status of credit score, current job, employment history and level of debts of an applicant while deciding whether to grant a HELOC approval or not.
  • The Index – Index is the financial indicator which banks use for setting interest rates on various loan products. It is usually referred to as the “Wall Street Journal Prime Rate”. The rate of interest is calculated by mortgage loan dealers on the basis of index and margin.
  • The Margin – A specific amount is added to the margin rate or “Wall Street Journal Prime Rate” by a lender, which is known as the index amount, for determining HELOC interest rate for homeowner. Thus, index and margin are crucial components for calculating HELOC rates of interest.
  • Draw Period – It is the time duration during which homeowners can borrow money from HELOCs for any purposes. Some leading banks will transfer money from HELOC within prescribed limits directly to borrower’s checking account. After withdrawing money and using it, homeowner will receive bill at month end.

Qualify for A Home Equity Line Of Credit with Bad Credit

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how do i qualify for a home equity line of credit loan

Here Are The 4 Basic Home Equity Line Of Credit Qualification Requirements

If you are thinking,” How to apply for home equity line of credit with bad credit?” then you may check your eligibility for a HELOC.

  • Equity Criterion – To obtain a HELOC approval, homeowner must make sure that the amount of equity in house is more than the line of credit sought. Loan dealers may provide HELOCs up to 125% of home equity. But for finding the home’s worth, appraisal could be necessary and charges will have to be paid.
  • Debt-To-Income Ratio – To find out if borrower can repay HELOC money, most of the lenders will ask for copies of latest paystubs, bank statements and W-2s. Loan usually, approve applicants only if DTI ratio is less than 36% meaning that credit card debts, mortgage insurance, mortgage payments, etc; are within this limit.
  • Credit Score Requirements – To secure the lowest and the best interest rate on HELOC, borrower must have a credit score of 700 or above and lenders may even waive off closing fees. If this condition is not being satisfied by an applicant then the interest rate charged will be a little bit higher.
  • Stable and Steady Employment – Majority of the HELOC lenders will approve applications only if borrower has a stable as well as steady job which fetches him enough monthly income to pay monthly HELOC payments on time. In addition, some mortgage loan dealers might also check employment history for past 2 years for granting HELOC approvals.