How Much HELOC Can I Get?
A home equity line of credit is a popular financing option for many. It allows you to tap into the equity you have in your home to finance a home renovation, buy new appliances, consolidate debt, or something else.
If you are thinking about applying for a home equity line of credit, perhaps you are wondering how much you can borrow. To answer this question, it’s important to understand how home equity lines of credit work and the factors that go into loan approval.
How Do Home Equity Lines of Credit Work?
Home equity lines of credit are different from traditional loans in several ways. First, they are different in how you receive and repay the money you borrow. With a home equity loan, you receive a lump sum for the full amount you are borrowing upfront and then repay it with fixed monthly payments. Alternatively with a home equity line of credit, you receive a line of credit that you can draw from as needed. You could draw some money to buy new furniture, for example, and then later draw some more to pay for an unexpected car repair. With a home equity line of credit, there are usually few or no restrictions on what you can use the money for.
Your available credit with a home equity line of credit can be replenished by repaying the money you borrow. You can repeat the cycle of borrowing and repaying as often as you like for as long as your home equity line of credit is active, which is known as the draw period.
Home equity lines of credit usually have variable interest rates, although they can also be fixed in some cases. If you don’t repay all of the money you borrowed during the draw period, some lenders may require a balloon payment where the remaining balance will be due. Alternatively, some lenders may allow you to amortize an unpaid balance and repay it over time with fixed monthly payments.
Related: How Does a HELOC Work?
How Much Can I Borrow With a Home Equity Line of Credit?
The amount you can borrow with a home equity line of credit will vary depending on your lender, considering factors like your home’s market value, income, and credit history.
Your Home’s Market Value
Lenders evaluate a metric known as the loan-to-value (LTV) ratio when considering you for a home equity line of credit. It’s a comparison of your home’s current market value to the amount you still owe on your mortgage. The LTV ratio is always expressed as a percentage, and higher ratios are considered riskier.
Income
Your lender will verify your income and employment history to make sure you have the means of making the minimum monthly payment.
Credit Score and History
Your credit score and history are good indicators of how you will handle future debts. If your credit score is low, it could harm your chances of qualifying for a home equity line of credit.
Your Current Debts
Lenders want to make sure that you currently don’t have too much debt before they approve you for a home equity line of credit. To do this, they evaluate a metric known as the debt-to-income (DTI) ratio, which is a simple comparison of how much money you make and your current debt.
The DTI ratio is always expressed as a percentage. If your DTI ratio is 30%, for example, it means that 30% of your monthly income goes towards paying off your debts. Lower ratios are better, and 43% is usually the highest that most lenders will consider.
Three Home Equity Line of Credit Options to Choose From
If you are considering a home equity line of credit, UCCU offers three great options:
- A home equity line of credit with a low variable rate and a draw period of 10 years
- A home equity line of credit with a fixed interest rate and a draw period of four years
- A home equity line of credit that allows you to make interest-only payments for the 10-year draw period
A great benefit of UCCU’s home equity lines of credit is that a balloon payment is not required at the end of the draw period if there is an unpaid balance. Instead, the balance is amortized and you can repay it with fixed monthly payments over several years.
Common Questions About Home Equity Line of Credit Borrowing
The following are several common questions about UCCU’s home equity lines of credit to consider.
What Do Most Borrowers Spend Their Home Equity Line of Credit Funds On?
Although UCCU’s home equity lines of credit can be used for nearly anything, home improvement projects and debt consolidation are two of the most common uses. Some members also take out home equity lines of credit to use as emergency backups.
How Much Home Equity Line of Credit Can I Get from UCCU?
The amount will vary depending on the loan criteria previously mentioned, but loan amounts typically range from $50,000 to $150,000, with the average being $100,000. At the end of the day, each individual scenario is different so you’ll want to consult a loan officer.
How Long Does it Take to Get a Home Equity Line of Credit?
It typically takes 2-3 weeks to process the application and get access to the line of credit.
Where Can I Apply for a Home Equity Line of Credit?
Applying for a home equity line of credit has never been easier. In addition to applying in person at a UCCU branch, you can also apply online. Everything can be handled electronically, including the signing of the final documents, which can be done from home after hours.
What Is the Biggest Misconception About Home Equity Lines of Credit?
Many people confuse the credit limit they get with a home equity line of credit with a traditional loan. They think you have to take out and repay the full amount of the available credit. Home equity lines of credit are similar to credit cards in how they operate. You only have to make payments on the amount that you withdraw.
Apply for a UCCU Home Equity Line of Credit Today
A home equity line of credit is a great way to put your home’s equity to use, and UCCU offers three home equity line of credit options to choose from. One of our home loan professionals can assist you with determining which option is best for your needs if you aren’t sure which one to go with.
Check out the following article to learn more about the requirements to qualify for a home equity line of credit. You may be closer than you think to using the equity in your home for a home improvement project or something else.
Requirements for a Home Equity Line of Credit (HELOC)