Do you currently own a home and are you looking for an additional source of income? There are certain loan options available that allow you to access the equity in exchange for cash or credit. One option that allows borrowers to tap into their home equity is a home equity line of credit or HELOC. If you are located in the areas of Knoxville, Maryille, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and wondering if a HELOC is right for you, Foundation Mortgage can help better your understanding.
What is a Home Equity Line of Credit?
A home equity line of credit is a type of second mortgage allowing current homeowners to borrow funds against the equity of their home, and receive that money as a line of credit that must be repaid. Home equity is basically the total amount your home is worth subtracted by the amount you still owe. Every time you make a mortgage payment, the amount of your home that you own increases, and after a sufficient amount of equity has been built up, you may be able to use that investment as a source of income.
How Does a Home Equity Line of Credit Work?
A HELOC is similar to a credit card in that it allows you to borrow money against your home equity for a specific time period and credit limit with your home being used as collateral for the credit line. Many people consider a HELOC in order to use the funding for home repair or improvement, debt consolidation, to pay for higher education, etc. Usually, the higher your credit score, the lower your interest rate will be. As you repay the balance of the HELOC, your available credit will be restored, so you will be able to borrow as much as needed throughout a specific time period. Borrowing and repaying are separated into two specific periods; a draw period in which the line of credit is open and available for use, and the repayment period, in which you no longer can borrow and your repayment period begins. HELOCs frequently have lower interest rates than other loan types, and may be tax deductible in some cases. It is important to note that a HELOC is a type of second mortgage, which will result in an additional loan on your property, on top of your existing mortgage.
Qualifying for a HELOC
Qualifying requirements for a home equity line of credit do vary, but typically they include:
- A credit score of 620 or higher
- A debt-to-income ratio of 43% or less
- Most lenders want you to have at least 15% – 20% home equity in your home
If you are a homeowner looking for ways to supplement your income in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and are wondering if a HELOC is right for you, Foundation Mortgage is here to help. Contact us today for a consultation.