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.
A credit card comes with many benefits. It allows you to pay faster and easier and is accepted almost everywhere. It often comes with rewards, and it can help you build or rebuild your credit score. However, people make several mistakes when selecting a credit card that can hurt their finances and credit for the […]
[A]nyone trying to repair their credit knows how bad collection accounts are. They can do a lot of damage to a person’s credit score, and it can take a long time to recover. There has been a lot of information and conversation going around about whether to pay old collections or leave them alone, whether […]
[A]t least it doesn’t have to if you learn from previous behavior. Rather it was the result of poor choices or an unfortunate event, you don’t have to pay for credit mistakes for the rest of your life. A study from VantageScore Solutions shows that credit scores can improve over time. How long? Surprisingly, it […]
[T]he ultimate threat for many is that they will have to declare bankruptcy because there is no way out of debt. They avoid this option except as a last resort because of the long-term impact it has on them. However, many people really don’t know what a bankruptcy would do to their credit rating, except […]
[L]easing a car is becoming more popular for people who like to trade for the latest model often. They also appreciate the lower payments and no worries about getting financed if you owe more on your car than it’s worth. Purchasing an automobile through a car loan can be difficult if you have poor credit. […]
[I]f you have an unusual name, you are probably used to spelling it for other people. Even seemingly simple names like Ann (Anne) or John (Jon) can have multiple spellings. While this may not seem like a big deal if you’ve had to deal with it all your life, it can cause major headaches, especially […]
[I]t doesn’t matter whether it is high school, college or even eighth grade graduation, the event is still a major milestone in a family’s life. The tendency to overspend it prevalent. It’s easy to pull out a credit card and book a venue, hire caterers or buy a gift. The problem of paying this bill […]