If you are a homeowner paying a mortgage, you might qualify for a home equity line of credit (HELOC). This operates similar to a separate checking account from which you can use your home equity to finance various expenses, such as education expenses or home renovations. Most banks made getting a HELOC an easy process, provided you have the equity to borrow against, although there are still several variables to consider when shopping for a HELOC.
Step 1
Calculate how much home equity credit you are eligible for using the standard estimation method. This amount is 85 percent of your home's appraised value minus the amount yet to be paid on your mortgage or liens. You don't need to max out your equity credit, but it will help you determine how you can use the money.
Step 2
Contact several lenders (usually banks or mortgage companies) and inquire about their interest rates (also called annual percentage rates, or APR). The lower the interest rate, the better, and doing your homework could save you thousands in the long run. You might also want to talk to a local real estate broker about who they might recommend.
Step 3
Compare the draw periods of different lenders. Ten years is the standard length of time during which you can write checks against your home equity, but you want to check and confirm this with each lender. You generally want a longer period of time to give you the flexibility--you can always choose to end your use of the equity or repay it early if desired.
Step 4
Fill out an application, if necessary. Some banks only ask for proof of the mortgage and available equity before establishing a HELOC with you, but you may be required to fill out a simple application detailing your financial situation, including mortgage and bill payments, income and savings.
Step 5
Choose the lender with the lowest rate and comfortable draw periods.
Member Comments