What is a HELOC Loan?
A home equity line of credit (often called HELOC and pronounced Hee-lock) is a loan in which the lender agrees to lend a maximum amount within an agreed period (called a term), where the collateral is the borrower’s equity in his/her house (akin to a second mortgage). Because a home often is a consumer’s most valuable asset, many homeowners use home equity credit lines only for major items, such as education, home improvements, or medical bills, and choose not to use them for day-to-day expenses.
To decide if you qualify for a HELOC, we will look at:
- Your income and your monthly expenses. Standard debt-to-income ratios are 28/36 for HELOCs. These ratios may be exceeded with compensation factors.
- Your credit history (this is important, but Conventional credit standards are flexible). A FICO score of 660 or above is very helpful in obtaining an approval.
- Your overall pattern rather than to individual problems you may have had.
- The appraised value of your home.
To be eligible for a HELOC your monthly housing costs (mortgage principal and interest, property taxes and insurance) must meet a specified percentage of your gross monthly income (28% ratio). Your credit background will be fairly considered. At least a 660 FICO credit score is generally required to obtain an Conventional approval. You must also have enough income to pay your housing costs plus all additional monthly debt (36% ratio). These percentages may be exceeded with compensating factors.
The interest rate for your home loan will be determined by the type of loan program that you qualify for and your credit score. You might be asking yourself what the formula to calculate interest rates is. Interest rates are driven off of Mortgage Backed Securities (MBS) which are commonly referred to “mortgage bonds”. These values of these bonds determine whether the interest rates rise or fall. Your final rate will determine your payment using the standard calculate mortgage payment formula. Please contact one of our loan officers to see what is today’s lending mortgage rate.
While Conventional Mortgage Guidelines allow you to purchase warrantable condos, planned unit developments, modular homes, manufactured homes, and 1-4 family residences. HELOCs can be used to finance primary residences, second homes and investment property.
Criteria for HELOC approvals state that if you have been discharged from a Chapter 7 bankruptcy for four years or more, you are eligible to apply for an Conventional mortgage. If you have had a Chapter 13 bankruptcy, it must be documented that the credit reputation has been re-established for at least two years to be eligible for a HELOC Application.
The maximum amount for a HELOC are determined by the amount of equity you have in your property.
Depending on the state where the property is located, the maximum Conventional Mortgage amount will be 85% – 95% of the appraised value of the home or its selling price, whichever is lower.
If you don’t qualify for a HELOC, getting an FHA loan might also be a good alternative because their loan limits vary by county. You can contact me for live, customized HELOC quote by completing the online application or by calling me at 843-375-6611