If you own a home, there are multiple options to make use of your home equity. Home equity is how much you own of your home, which can be calculated by subtracting any loans or liens on a home from the home’s current market value. This money is tied up into the ownership of your home, however, there are some ways to take access and utilize these funds!
What Is a HELOC?
A home equity line of credit, or HELOC, is a revolving line of credit that is secured by your home. There is a set time period where this line of credit is available to you, which is called the “draw period,” and allows you to withdraw funds as needed during that time. There is a set limit to the amount of funds that you can borrow, but you don't have to borrow all the funds at once.
Why Should You Consider a HELOC?
A HELOC, in contrast to your original mortgage, allows you to borrow money as needed, rather than all at once. This can be an especially helpful way to get funds if you’re looking to pay for tuition, vacations, or even for a project where you may not know your budget or need to make payments over time instead of all at once.
How Much Can You Borrow?
There are several factors that help determine how much you can borrow from your lender. The biggest factor, which is your home equity, comes from how much you still owe on your home and the current market value of your home. You need to have equity in your home in order to utilize a HELOC and the amount of equity you have correlates with how much you can borrow. Other factors that can impact your approval include your credit and the amount of debt you currently have, particularly in comparison to your income.
Are There Any Risks?
You may be wondering about any potential risks associated with a HELOC. Because the line of credit is secured by your home, the biggest risk is that failure to make payments can result in the foreclosure of your home. It’s important to take a look at your finances and ensure that you can afford the payments of the HELOC.
What Other Options Are There?
If you’re looking for a way to access extra funds, a HELOC may be the best fit for you, especially when it comes to flexibility. However, there are other options to compare and consider when looking for the best loan option for your needs. You may want to consider a cash-out refinance or a home equity loan to fit your needs.
Once you’ve decided that a HELOC is right for you, the next step is choosing a lender and submitting an application. For the application, you’ll need to be prepared to provide information and documentation. You may need your personal information, documentation for the past two years of income, proof of your home insurance, and either mortgage documents or proof of homeownership.
The underwriting process may take a little bit of time as the lender reviews your application, especially if you need an appraisal done on the home. Make sure that you ask your lender any questions that you may have and understand the conditions of the loan before signing.
A HELOC can be a great way to access extra funds from your home equity. Whether you’re looking to fund a home remodel, school tuition, or even your dream vacation, consider a HELOC to help you achieve your goals.