If buying your first home is as hard as climbing to the top of Mount Everest, then getting the Home Equity Line of Credit (HELOC) will be like descending from there. The closing table with its mountain of paperwork is now in your past. Now you can feel yourself sitting on the golden mine of equity.
Home Equity Line of Credit is a credit card secured by the borrower’s home. It is possible to borrow money from this credit line whenever you need it in small amounts and you do not need to take the whole credit line at once.
Minimum equity in the home should be twenty percent of the total value of your home. It means that if your home costs four hundred thousand dollars, your mortgage cannot exceed three hundred twenty thousand. In addition to the property, the lenders are interested in your credit score as well, so make sure it is healthy enough. Scores higher than 700 give you the best deals. However, some programs can have less strict credit score requirements.
Get ready for the pile of documentation before moving to the application process. Gather your paycheck stubs and tax returns from the last two years. Since the lenders need to make sure that you have enough income to cover the loan, they will ask for the proof of your income. Do not forget to gather your homeowners’ insurance and mortgage statements.
As you know, it is very important to compare shops when applying for the credit card. It is equally important in case of the Home Equity Line of Credit as well. Choose a big lender like Bank of America or local credit union. Find out what kind of introductory rates these banks offer since the rates look very attractive, however, they expire after a certain period of time. Try to find out what Annual Percentage Rate, or APR, will be after the expiration of the introductory period.
When you choose the lender you can easily fill out the application form online while staying in your pajamas. The lenders will check your credit score and your employment history. Do not try to hide your financial obligations since it will only complicate the situation later.
Now the hard part starts – the lender will want to have the appraisal of your property. It will cost you several hundreds of dollars but it is necessary since it guarantees that the lenders will not invest too much money into the loan.
So far, you have completed the application process. As soon as the appraisal is completed, you move to the next step, which is the closing stage. You will sign a lot of papers and pay the closing fees, which are in the range of two to five percent of the line of credit.
After it is all done, you can start using your money. You can withdraw them using your checks or using your own debit card connected to the account. This money can be used for kitchen renovation or paying off your debts, although the main thing to remember is that your house is the collateral.