To be eligible for a HELOC, you need to have the capital available in your home, which means that the amount you owe for your home must be less than the value of your home. In general, you can borrow up to 85% of the value of your home minus the amount you owe. Take our 3-minute questionnaire and talk to an advisor today. Founded in 1976, Bankrate has a long history of helping people make smart financial decisions.
We've maintained this reputation for more than four decades by demystifying the financial decision-making process and giving people confidence in the actions they should take next. The retirement period typically lasts about 10 years, during which time you may only be required to make interest payments. Then, you'll enter the repayment period, which is usually 20 years, and you'll make monthly payments to cover principal and interest. A favorable credit score is essential to meet the approval requirements of most banks.
A credit score of 680 or higher will most likely qualify you for a loan, as long as you also meet the capital requirements, but most lenders prefer a credit score of at least 700. In some cases, homeowners with credit scores of 620 to 679 may also be approved. Some lenders also provide loans to people with scores lower than 620, but these lenders may require the borrower to have more capital in their home and have less debt relative to their income. Home equity loans and HELOCs with bad credit will have higher interest rates and lower loan amounts, and may have shorter terms.
The qualifying DTI indices will vary from lender to lender. Some demand that their monthly debts consume less than 36 percent of their gross monthly income, while other lenders may be willing to go as high as 43 percent or 50 percent. Be prepared to provide income verification information when you apply for your loan; examples of documents that may be requested include W-2 forms and payment receipts. Applying for a home equity loan or HELOC can be a wise decision if you need money to finance a home improvement project or consolidate high-interest debt.
Because loans are guaranteed by your home, the interest rate is often lower compared to unsecured loan products, such as credit cards or personal loans. For example, home equity loan rates range from 3 to 12 percent, depending on the lender, the amount of the loan, and the borrower's creditworthiness, while the average credit card rate exceeds 16 percent. A good credit score will make you eligible for a loan with a lower interest rate, saving you a substantial amount of money over the life of the loan. Lenders also use your credit score to determine how likely you are to pay the loan on time, so a better score will increase your chances of getting approved for a loan with better terms.
A credit score of 680 will qualify you for a loan with acceptable terms as long as you also meet the principal requirements. A score of at least 700 will make you eligible for a loan with lower interest rates.