How Much HELOC Can I Get?
The maximum HELOC amount that will be offered to you will depend on whether your ability to meet the lender’s HELOC eligibility requirements.
HELOC qualification requirements may include your credit score, how much equity you have in your home, the lender’s maximum loan limit, and a combination of other requirements that may be unique to each lender. Credit unions and banks will generally lend up to 85% LTV (loan-to-value) based on your home equity.
The interest rate you get will also be based on your credit score, your income, debt, and other qualifying information that lenders use to determine each borrower’s level of risk. Individuals with higher credit scores will be offered a lower rate, while individuals with lower credit scores may be offered a higher interest rate. Try a
HELOC calculator for precise results.
At Credit Union of Southern California (CU SoCal), we’d like to help you get a HELOC!
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our
home equity lines of credit,
auto loans,
personal loans,
checking and
savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all of your banking needs.
Get Started on Your Home Equity Line of Credit (HELOC)
HELOC Qualifications and Requirements
HELOCs are offered by credit unions, banks, mortgage companies, and some online lenders. Each lender has a unique set of qualifying requirements that a borrower must meet to be approved for the loan, and to determine just how much you can borrow.
Here are some general HELOC requirements:
- A minimum credit score of 660.
- Proof of income and employment.
- A new appraisal to determine the current value of your home.
- Up to 85% Loan-to-Value (LTV)
HELOC Eligibility Requirements and Qualifications
Other Factors To Consider
While shopping for a HELOC, each lender you speak with may offer you a different loan amount and interest rates. These can change based on several factors, including changes in credit score, the housing market, and even your mortgage balance.
Credit Score Changes: Credit scores fluctuate all the time, and can even fluctuate daily as you use credit and pay bills. The three primary credit reporting agencies (also known as credit bureaus), are
Equifax,
Experian, and
Transunion. Each of these agencies issues a credit report, which you can request for free. FICO
® uses information in these credit reports to generate your credit score. Changes in your report information or score can affect the loan amount and rate you are offered by a lender. Check out these
7 Ways to Improve Your Credit Score.
Housing Market: The strength or weakness of the housing market can affect the appraised value of a house. A home’s appraised value is important because it’s used to calculate home equity. The higher your home’s appraised value, the easier it will be to borrow money based on your home equity.
To calculate home equity: If the home’s appraised value is $600,000 – Mortgage balance of $250,000 = $350,000 Home Equity
Mortgage Balance: As you can see in the equation above, the lower the mortgage balance, the more equity there is in a home.
Understanding Your HELOC Payments
HELOCs are repaid through monthly payments based on the amount of the loan you’ve used out (not the total amount of the approved HELOC itself, but the amount you’ve actually utilized!).
There are two phases of the loan to be aware of, the Draw Period and the Repayment Period. Each lender will have some unique requirements related to how the loan is used and repaid. Be sure to ask your lender the number of years of the draw period and the repayment period
Draw Period: HELOCs are created with a “draw period” (typically 10 years), during which money can be borrowed from the total loan amount. During this period, the monthly payments are interest-only. Meaning that you only pay interest on the amount you’ve withdrawn. Once the draw period ends you can no longer use or draw from the funds.
Repayment Period: When a HELOC’s draw period ends, the repayment period begins. The loan will re-amortize (be re-calculated) to include both principal and interest in the monthly payment amount. Quite often borrowers are shocked to see their monthly payments increase dramatically. Some lenders will let borrowers convert the draw period’s variable interest rate to a fixed rate.
Is Getting A HELOC A Good Idea?
A HELOC can be a great way to access the full value of your home to get the money you need to make renovations or other large purchases. The maximum HELOC amount you can borrow will be based on the lender’s loan limit, your home equity, credit score, and other factors. For homeowners who can easily meet these requirements, then getting a HELOC can be a great option for getting cash.
However, there are caveats to consider, like a variable interest rate (which means unpredictable monthly payments on the amount you owe). On the other hand, making large dollar purchases using a credit card or credit card cash advance could get expensive, as credit cards have high interest rates. If you need a large amount of money and are trying to decide between using your credit card or a HELOC, the HELOC will likely save you money on interest, even with its variable rate.
HELOC Pros and Cons
Pros:
Low APR: While most HELOCs come with an adjustable interest rate, the Annual Percentage Rate (APR) on a HELOC is typically lower than the interest rate charged by credit cards on purchases and cash advances.
Interest May Be Tax Deductible: According to the
IRS, interest paid on home equity loans and lines of credit is only deductible when you use the proceeds to buy, build, or substantially improve your home that secures the loan.
For example, interest on a home equity loan used to build an addition to an existing home is typically deductible, while interest on the same loan used to pay personal living expenses, such as credit card debts, is not.
Get more information from the IRS.
Borrow Only What You Need: Having a line of credit means you have the option to borrow only the amount you need at any given moment by withdrawing it from your HELOC account using a check or ATM card. You will only pay interest on the amount you borrow, not the full amount you are approved for.
Flexible Repayment Options: All HELOCS have a “Draw Period” (typically 10 years) and a “repayment period” (typically up to 20 years). During the draw period you can borrow as much of the funds as you need. Payments made during the draw period are “interest only,” meaning you aren’t repaying the loan with principal. Some lenders will allow payments toward principal during the draw period. Be sure to ask your lender about repayment terms.
Raise Your Credit Score: Making on-time loan payments will boost your credit score. Adding a HELOC to your credit mix can boost your
FICO score in two ways: by adding to your credit history (which accounts for 35% of your credit score) and adding to your credit mix (which accounts for 10% of your credit score).
Pre-Payment Penalty: Most HELOCs do not have a pre-payment penalty. As you shop for a HELOC, be sure to ask each lender about pre-payment terms. Some may require you to keep the loan open for a fixed period of time
Few Restrictions: You can use the money any way you’d like!
Cons:
Your Home Will Be Used As Collateral: If you default on the loan, the lender can do a foreclosure and you could lose your home. Failure to make on-time payments will hurt your credit score.
Variable Interest Rate: HELOCs often come with a low promotional rate and when the promotional rate expires, they have a variable rate that can increase over time. A variable interest rate means the amount you owe in interest on the amount you’ve used will be different each month. If your financial situation worsens during the loan period, you could end up owing more than you are able to pay.
Overspending: Because the money is available, many people will borrow from it freely and run the risk of using more funds than originally planned. The draw period’s interest-only payments make repayment appear manageable, but eventually, the principal amount will need to be paid back.
Reduced Equity in Your Home: Using your home as collateral means you have less equity. This could affect your ability to get approved for other loans while you have an open HELOC.
HELOC Alternatives
If a HELOC isn’t right for you, consider these other loan options:
Cash-Out Refinance: With mortgage interest rates very low, refinancing your current mortgage to a new mortgage loan could lower your monthly payments. Getting cash-out means borrowing more than what you owe on your current mortgage and get a cash disbursement of the extra funds at closing. You can use the cash any way you choose.
Personal Loans: Credit unions and banks offer a wide variety of
secured and unsecured personal loans to meet a wide variety of borrowing needs. You’ll find variable and fixed rate
personal loan options.
Family Loans: You may have family members that are willing to loan you the money you need, however, this type of loan can damage the relationship if you fail to pay back the money. If you borrow money from a family member, always put in writing what the re-payment terms will be.
0% APR Credit Cards: There are many credit cards that offer a promotional 0% APR (annual percentage rate) for a fixed period, usually 12 months. After the promotional rate expires, there will be a new higher rate applied to the outstanding balance, so be sure you know what the post-promotional rate will be. This option can be good if you need extra money in the short term.
CD Loan: A CD is a Certificate of Deposit — a type of savings account offered by credit unions and banks. This type of loan uses your CD account as collateral. The lender will add a small percentage interest fee to the CD’s APY (annual percentage yield) to come up with the amount you will be charged to borrow money using your CD as collateral.
CU SoCal HELOC
At CU SoCal, we make qualifying for a HELOC stress-free! We offer an interest-only HELOC, so you pay only the interest due each month, giving you the flexibility to keep payments low during the 10-year draw period of your loan.
We offer the choice a lump-sum loan or a revolving credit line that can be used over and over again.
Other great HELOC features include:
- Access up to 80% of your home's equity.
- No points.
- No appraisal fees for single unit loans.
- No annual fee.
- No closing costs.
- Loan limit up to $250,000.
Why Savvy Consumers Choose CU SoCal
For over 60 years, CU SoCal has been providing financial services, including
HELOCs,
car loans,
personal loans,
mortgages,
credit cards, and other banking products, to those who live, work, worship, or attend school in
Orange County,
Los Angeles County,
Riverside County, and
San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Get Started on Your Home Equity Line of Credit (HELOC)