If you are a homeowner, you likely know that getting to this stage in your life was not easy. The fact that you are in possession of property is a huge feat, and is something that isn’t easy to do. Overtime, after taking a look at your financial circumstances, you may choose to pursue larger projects.
To do this, however, you’ll more than likely need the assistance of a loan. Second mortgages, as they are commonly referred to, are what you should get after. One of the best loans to get actually comes in the form of a home equity line of credit.
Getting your home equity line of credit application approved isn’t too difficult. However, you just need to have some key pieces of information ready for review. Once the necessary time elapses, your home equity line of credit will introduce you to a world of new possibilities!
Here are the most important steps on how to get a home equity line of credit:
1. Know Your Financial Standing
Knowing your financial standing is one of the first steps to get a home equity line of credit. Lenders of all backgrounds will have different styles, when it comes to conducting their work. However, there is one rule that each will stand by, as it pertains to any potential borrower. All lenders require the borrower to present themselves with the least risk attached as possible. The main point here is to ensure, if you are the borrower, that your finances are in order.
Make sure that all of your bill payments are made on time. This can range from your home’s utilities, to your usual mortgage payments each month. When this is done, you come across as a safe borrower, which ends up bettering your situation during the application process. Stay on track of your finances, and it will go a long way!
2. Check Available Equity
As the name implies, a home equity line of credit is a type of loan that draws from your home’s stored equity. You’ll most likely have to have been living in your property for a good amount of time, in order to build equity. A typical rule of thumb to go by, when trying to draw from your equity, is sixty-five to eighty per cent.
This is a standard figure that most lenders go by, during the application process of a HELOC. Be sure to have your affairs in order, including your income. Getting approved for a home equity line of credit requires you to have a reliable source of income. That way, you’ll be able to keep up with the loan’s payments.
3. Account for External Factors
While getting your finances in good standing before an application is important, there are other aspects to consider. For example, a lender will more than likely take a look at your credit history as a start. Your credit score is one of the most important factors that can make or break the application’s approval.
Any outstanding debts, such as student loan debt, should be dealt with accordingly, even if you are still paying it off. The main thing, in this light, is to ensure that you can handle the responsibilities that come with a HELOC.
4. Calculate Equity
Once you have become familiar with how a HELOC works, you should try to get yourself a rough estimate of your equity. The calculation is rather simple; subtract the loan amount owing on your mortgage from the market value of the property. This is used to estimate your loan-to-value ratio, a figure required by financial institutions such as a bank.
Since there are so many potential lenders to do business with, you are not short of options for your HELOC. As a result, you’ll want to shop around and do some due diligence first and foremost. Many of these lenders can come in a variety of formats, such as your established bank.
Each of the lenders that work here should be able to inform you about their services. Should you be unsure about how you want to proceed, always ask questions. Moreover, it may be wise to even try negotiating with them if possible. You never know what can happen with your application until you try!
6. Understand the Rates
Home equity lines of credit come with two different rates attached to the loan. Generally speaking, variable interest rates, will be the main type of rate to know about. This can fluctuate due in part to multiple factors, such as the market in which your property is situated. On the other hand, you could try to negotiate for a fixed rate instead.
Although variable rates may work better with a HELOC, depending on where you are, fixed rates could also work. These can be paid in installments, similar in vein to your usual mortgage payments. Once you understand how each rate works, you can assess how your loan will turn out.