If you’ve been looking for a way to get a little money out of your home without actually selling it, you’ve probably come across something called a Home Equity Line of Credit (HELOC). What is a HELOC, though?
A HELOC allows you to borrow money using the equity in your home as collateral. Remember, equity is the ownership of assets that may have debts or other liabilities attached to them!
HELOCs are like a credit card: You can borrow on an as-needed basis, up to the loan’s limit, over the term of the loan (usually 5 to 20 years). Your local lender will actually issue you a card that looks just like a credit card that allows you to access your money easily.
This works well for those who want to borrow money, but don’t know exactly how much they’ll need. It’s also good for people who don’t need to borrow a large lump sum all at once and will be paying for something over time, like medical bills, college tuition, or major additions to their home.
Ideally, a HELOC should be used for home renovations or for big, unforeseen expenses that you don’t have the cash reserves to cover. It should not be used for everyday living expenses, just to make ends meet.
How much can you borrow with a HELOC?
How much you can borrow depends on how much equity you have in your home. Our lenders will usually allow you to borrow between 75%-85% of the home’s appraised value, minus what you still owe.
To determine your actual credit limit, our lenders will also consider your ability to repay the loan (principal and interest) by looking at your income, debts, and other financial obligations, as well as your credit history.
As with every type of home loan out there, it’s best to be careful with your money and do your homework. Our lenders would be happy to help you through the process!