Home equity line of credit, also known as HELOC, works just like a credit card. It gives you access to money whenever you want it. The only difference is that you only have access to a certain amount of money.
However, your payments are only based on the amount you have used. With a home equity line of credit, you can pay off the balance of the money and reuse it again.
HELOC is a secured loan tied to your home, and this is what makes it different from a credit card. Your home is your most valuable asset. This means you can use your HELOC to borrow money for any purchases or projects you want to carry out.
However, the money you borrowed from the home equity line of credit can be used to settle medical bills, property investments, home improvements, etc.
HELOC have become so popular due to their flexibility when it comes to borrowing and repaying. Homeowners usually get attractive interest rates, and they are seen as low-risk financial products.
Your home serves as collateral for HELOC, so if you cannot repay the loan or meet the loan requirement, it may result in the total foreclosure of your home.
What is Home Equity Line of Credit?
A home equity line of credit, or HELOC, is some sort of credit line that is secured by the equity in your home. You can use your house as collateral to request a loan, but your home will be foreclosed if you are unable to repay the loan.
How Does HELOC Work?
It is very easy! Once you apply for a HELOC and get approved, you will be given a credit limit. The credit limit will be based on your available home equity. During your initial draw period, you can spend the funds using a draw debit card, an online transfer, or checks. Also, borrowers are expected to make monthly interest payments on the amount they borrow.
How Much Can I Borrow on a Home Equity Line of Credit?
The amount of money you can borrow depends on the lender. They use formulas to determine how much home equity you can borrow. There are different lenders, so it is advisable to apply to credit unions, online lenders, and banks before choosing the best offer.
How to Get a Home Equity Line of Credit
It is very easy to get a HELOC, but during the process, you have to exercise patience. The process of getting a HELOC is just like applying for a refinance or purchasing a mortgage. To get HELOC, you have to provide some documentation and show that you are worthy enough to take this credit. Here are the steps to follow.
- First, you have to start by calculating your existing equity. Calculate the current value of your home, then subtract what you owe. The final calculation will tell you how much you can borrow.
- Gather necessary documentation like your mortgage statements, personal identification, recent pay stubs, and W-2s.
- Search around for multiple lenders and apply for the HELOC from a lender you trust.
- After you have found a lender, read your disclosure document carefully. Ask your lender the necessary questions if you need to.
- Note that the underwriting process can take weeks.
- Wait for the loan to close after signing some paperwork, and the line of credit is now available.
HELOC gives you the opportunity to borrow against your home equity. You can repay, lend, repay, and lend. You can lend as much as you want; just make sure you repay it.
FAQs
How Long Does it Take to Apply for a HELOC and Get a Response?
This does not take so much time; it can take two to six weeks from your first application submission. Within this period, you will receive your HELOC card or checks in your mail.
Are Home Equity Line of Credit Rates Fixed?
Absolutely not. Your HELOC rates are variable, so you can always convert them to a variable rate. Also, you can convert your HELOC into a fixed-rate loan by refinancing your principle balance. This can be done by a new lender or the same lender.
Can a Home Equity Line of Credit be Canceled?
Of course, a HELOC can be cancelled. It can be cancelled within three business days after your closing. To cancel your HELOC, you have to do it in writing, and then the lender will refund any fees you paid.
When Is It a Good Idea to Get a HELOC?
There is no better time to get a home equity line of credit than when you are trying to pay off high-interest credit card debt or trying to improve your home. There are certain situations you might find yourself in that warrant getting a home equity line of credit.
For instance, funding emergency expenses, medical bills, paying for education, or car repairs are some of these situations.
