Some homeowners access the equity in their home by applying for a home equity line of credit or HELOC. In many cases, they do so to handle unexpected expenses. If you own a home and you have equity in the home, you can be approved for a HELOC by your lender. You get about twenty years to pay off the balance and since this is a revolving line of credit, you can keep using it during this borrowing period. There are certain requirements to getting approved for a home equity line of credit.
You must have at least 15 percent and up to 20 percent of equity in your home. The value of your home is dependent on the appraisal done. The lender will typically use their appraiser to get the current value of the home. The equity in your home will determine the amount of money you will be allowed for the line of credit. Your debt to income ratio must be 43 percent, but the maximum must not be more than 50 percent. It is best that your debt to income ratio be lower than 43 percent if possible. The lender views this in good light and considers you low risk.
You must usually have a credit score equal to 620 or even higher. If you have a higher credit score, your interest rate will be lower. You also must show that you have been paying your bills and expenses in a timely manner. The lender will ask for proof of income and you must be making enough money to pay your first mortgage as well as the new home equity line of credit along with your other household expenses. If you show that you are paying expenses on time, you would be considered low risk to the lender. This makes it easier for the lender to approve the HELOC loan.