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Digging out pay stubs. Looking up your credit score. Filling out applications. Doesn’t sound particularly fun, does it?
But a little effort can help you access the cash you need to achieve your personal and financial goals by tapping into what’s likely your biggest asset — your house.
A home equity line of credit, or HELOC, is a type of second mortgage that lets you borrow against your home’s equity through a revolving line of credit. With relatively low-interest rates compared to other forms of financing and flexibility in how you borrow money and repay it, a HELOC is a great choice for those who want to use their home equity to fund home renovations or consolidate debt.
And, with a hot housing market driving up home prices, many homeowners are finding themselves with increased equity to take advantage of. “Everyone should make their equity work for them, whatever that means to them,” says Tabitha Mazzara, director of operations at MBANC, a mortgage lending company headquartered in California.
If you need financing for an upcoming expense and want to use your home equity to secure it, here’s what you need to know about applying for a HELOC.
How to Apply for a HELOC in 4 Easy Steps
So you want to take advantage of the equity in your home. Now what? Experts say there are a few steps you should take to apply for a HELOC.
1. Decide if a HELOC is right for you
There are many ways to access the equity in your home, so start by looking at your financial situation and deciding if you have the means to take out a home equity line of credit.
“The first thing that [borrowers] need to look at is their ability to qualify,” Mazzara says. Even if you like the idea of a HELOC, make sure you’re a good candidate before you apply. HELOCs are best for people who have great credit scores and a stable income that’s easy to document, Mazzara says.
She also says it’s easier to qualify for a HELOC if you’re borrowing less than $200,000, and if you have plenty of extra equity in your home as a cushion that you’re not borrowing against.
One factor lenders will look at when evaluating your application is your combined loan-to-value ratio (CLTV): the total …….