If you’re a homeowner and you have built up some equity in your home, you may be eligible for a home equity line of credit (HELOC). A HELOC can be an effective way to finance home improvements and other short-term projects and goals. How can you do this? Let’s start with a quick introduction on how these lines of credit work, and an overview of HELOC requirements.
What is a HELOC, and what can you do with it?
Essentially, when you take out a HELOC, you borrow against your home’s equity. With this type of loan, you borrow money from a revolving line of credit.
People frequently take out HELOC’s when they are working on home improvement projects, consolidating debt, or paying tuition. This is in contrast to the alternative, a home equity loan, that offers an upfront lump sum at a fixed interest rate.
HELOCs work similarly to credit cards. You borrow as-needed, up to a certain limit, paying on the interest as you go. In this case, the credit limit is determined by subtracting your remaining mortgage balance from the value of your home.
University Credit Union members can borrow up to 80% of this amount, also known as the combined loan to value (CLTV) ratio.
A lender typically gives borrowers a 10-year draw period, during which they can withdraw money from their HELOC. During the repayment period that follows, you can no longer borrow. Repayment periods usually last up to 25 years, and you pay on both outstanding principal and interest owed.
Generally, HELOCs have variable interest rates, meaning they can vary with baseline interest rates. However, if you have a good credit score, you will likely enjoy more favorable rates.
An overview of HELOC requirements
At University Credit Union, we understand that each borrower and every situation is different. That’s why we work with you to help you save more and reach your financial goals.
With that in mind, your HELOC process and experience depend on a variety of factors. Here are UCU’s requirements:
- A debt-to-income ratio (DTI) less than or equal to 43%
- A credit score of at least 620
- Home value must be a minimum of 20% more than what you owe
Your debt-to-income ratio assesses how much of your income goes to monthly debt payments.
When you apply, you’ll be asked to provide supporting documentation. Information requested may include:
- Proof of income and employment (examples of proof of income include W2s, 1099s, and pay stubs)
- Mortgage Statement and Note
- Homeowner’s Insurance
- Additional relevant information (proof of rental income, divorce decrees, evidence of bankruptcy and foreclosure)
After You Apply
Once you’ve filled out an application, you’ll be provided with disclosure documents within 3 days. This is your opportunity to review all the terms and conditions of your HELOC.
During this process, your home will likely be appraised for its value. An appraisal is a common part of determining loan amounts.
Finally, there is a closing on your loan. One you’ve signed the remaining required documents, you can then access your line of credit.
The University Credit Union Advantage
With University Credit Union, our members enjoy easy, instant online access to their HELOC funds and no annual fees. In particular circumstances (i.e., if you’re using it for specific home improvements or upgrades), the interest may be tax-deductible.
If you have a stable source of income and want to borrow a minimum of $25,000, a HELOC might be a good fit for you. Talk it over with our experienced representatives to explore your options.
Credit union membership offers a more personalized member service experience. Because credit unions are not-for-profit and member-owned, they can afford to reward borrowers with lower interest rates.
If you’re interested in taking out a HELOC, click below to check out our rates!
SEE OUR LOW RATE HELOCS