Are you a current homeowner looking for a supplemental form of income? There are loan options that exist that can allow you to access the equity that has built up in your home in exchange for credit or cash. One great type of option that lets borrowers tap into home equity is known as a home equity line of credit, or HELOC. If you own a home in and around the areas of Knoxville, Maryville, Lenoir City, or Oak Ridge, Tennessee, and want to learn more about your mortgage options, Foundation is here to help. Continue reading to learn if a HELOC is right for you.
Home Equity Line of Credit: Essential Information
A HELOC can be described as a second mortgage that allows a current homeowner to borrow against the equity of their home and use that money as a line of credit that eventually is paid back. The amount of home equity you have can be determined by subtracting the amount that you still owe on a loan from the total amount that your home is worth. Each time a borrower makes a mortgage payment, the amount of home that they own grows, making it possible to utilize that investment as a source of income after an adequate amount of equity has built up.
How Does HELOC Work?
A home equity line of credit is similar to a credit card because it helps a homeowner borrow against their home equity for a specified credit limit and time period, with the home serving as collateral for the credit line. A HELOC is popular among many people because they use it to consolidate or pay off debt, to fund home repairs or renovations, to afford higher education, etc. When you begin to pay back the balance of the HELOC, your credit availability will be restored, allowing you to borrow as much as needed throughout a specific time period. Repayment and borrowing are divided into two separate periods; a draw period where the line of credit is open and available for use, and the repayment period, where borrowing is no longer allowed and repayment begins. The interest rate of a HELOC is typically lower than other loan types, and may be tax deductible in certain instances. It is important to remember that a HELOC is considered a second mortgage, which means that it is an additional loan on your property on top of your current mortgage.
Home Equity Line of Credit Requirements
In order to qualify for a HELOC, there are certain qualifications that must be met, including:
- A debt-to-income ratio of 43% or lower
- A credit score of 620 or above
- Most lenders will want you to have at least 15 to 20 percent equity in your home
If you are interested in learning more about a home equity line of credit in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, contact Foundation Mortgage today for a consultation.