What Credit Score Is Needed for Home Equity Line of Credit?

April 15th, 2012 | Author:

A home equity line of credit or HELOC is a form of revolving credit in which the collateral is your home. It is similar to a credit card that homeowners can draw money from whenever they need it, but enjoying much favorable interest rates. A HELOC can affect your credit score either positively or negatively.

Consumers value their home very much, that is why HELOC is typically used for essential items only like medical bills, home improvements and education, and not for regular daily expenses. There are certain qualifications that applicants should satisfy in order to qualify for a HELOC, and credit score is one of them.

In fact, credit rating bears a lot of weight in the underwriting process of a HELOC application. Credit reports must show that the homeowners have a good to excellent credit score, and have made payments to creditors on time, suggesting a pattern of financial stability overall. Every lender has its own minimum credit score requirement, although generally speaking the chances of getting approved is higher with a high credit score.

Your credit score will determine your risk of not being able to pay back the money you have borrowed through the HELOC loan facility. You may not even qualify for a loan if you have an extremely low credit score like below 500. Meanwhile, a credit score of above 700 – which is considered an excellent score – will likely qualify you for the best rates and terms. Only applicants with FICO scores of 620 or higher can qualify for the prime interest rates.

Any borrower that opens a HELOC is essentially accessing his home’s equity. For starters, equity is the difference between the determined value of the property and what is owed against it.  The credit limit is calculated by subtracting the balance in your first mortgage by a certain percentage of the home’s appraised value, which is around 75 to 80 percent.

To illustrate, if the appraised of a home is $400,000, it will be multiplied against 80 percent (or in some cases 75 percent), which will fetch $320,000. It will then be subtracted by the balance in the mortgage loan, say $250,000. In sum, the equity of the home is $25,000 and through the HELOC loan facility, the homeowner can borrow up to that amount. In most cases, the HELOC credit line is a lot higher compared to a regular credit card.

Newest Answers

The Scoop On Multi-Account Cards

February 5th, 2016 | Author:
h

[A] multi-account card does exactly what it sounds like it does. It allows you to keep information from multiple cards on a solitary device. It functions exactly like a regular credit card. If you don’t have a multi-account card you may want to reconsider the benefits. These multi-account cards offer convenience and security all rolled […]

Continue Reading »

How To Avoid Electronic Pickpocketing

February 3rd, 2016 | Author:
h

[P]ickpocketing is one of the oldest crimes in the book. For centuries, thieves have been taking advantage of crowded places to get their hands on other people’s hard earned money. A new form of the deception has evolved for the current age. Electronic pickpocketing is now possible due to several advances in technology. Learn more […]

Continue Reading »

Tips for Rebuilding Your Credit After Delinquencies

February 1st, 2016 | Author:
h

[Y]our credit score is likely one of the most important numbers in your life. It will follow you around when you try to land a job, purchase a new home, or qualify for a loan. If your score has taken a turn for a worse, it doesn’t have to stay that way forever. You can […]

Continue Reading »

Easy Habits That Can Change Your Credit Score

January 29th, 2016 | Author:
h

[T]he way you use your credit can have a major impact on your lifestyle, for better, or for worse. Achieving an excellent credit score may seem like an impossible goal. However, even a few small changes can really make a difference. The following habits can transform your credit and your life. Be On Time Making […]

Continue Reading »

Business Credit Tips and Tricks

January 27th, 2016 | Author:
h

Running a business requires an ability to juggle a wide range of tasks, often all at the same time. One such task involves keeping your credit profile in good condition. Maintaining your business credit is one of the important things an owner must handle. Learn more about how to keep your business credit on track. […]

Continue Reading »

Paying for College During Financial Difficulties

January 25th, 2016 | Author:
h

[D]eciding on how to pay college tuition for your child means making some tough choices. For parents with financial troubles or bad credit, the decision are made even more difficult. Many people in this situation worry that there are no options available. Find out how you can help pay for college even when faced with […]

Continue Reading »

How To Get A Good Deal On A Mortgage

January 22nd, 2016 | Author:
h

[A]pplying for a mortgage is a somewhat labor intensive experience. Lenders require borrowers to fill out lengthy applications and provide plenty of documentation. It is important to be ready for everything that the process entails. In order to get the best deal possible on your mortgage, it helps to be prepared. Credit Utilization The amount […]

Continue Reading »