Rising interest rates have made the HELOC loan a popular choice in 2024 for homeowners to tap home equity and get cash without breaking the bank. We will explore the HELOC loan requirements for credit scores, DTI and cash out, so you can take out a home equity line of credit and borrow with confidence while leveraging homeownership.
With higher home prices that don’t appear to be coming down soon, it could be the perfect time to access some of your home equity.
After all, most American homeowners have financial wants and needs that cost thousands of dollars and the HELOC credit line may be a prudent choice.
Who doesn’t want to take out a HELOC to upgrade their kitchen or bathroom? What about putting in a swimming pool, or paying off credit card debt?
What Are HELOC Requirements in 2024?
Getting approved for a home equity line of credit opens up the door for many opportunities that non-homeowners do not have.
HELOC lines can increase cash flow and provide homeowners to get quick access to “cheap money”, because HELOC rates are typically lower than credit cards and personal loans. Find out which rates are lower, the home equity loan or the line of credit?
There are no universal requirements to qualify for a HELOC, but most lenders look at the following to approve you:
- How much equity is in the home. Most lenders want to see at least 20% equity.
- People with more equity have more ‘skin in the game’ and will usually receive a lower rate.
- Credit score: Most people who get approved for a HELOC have at least a 640 or 650 credit score.
- If you have a higher score, you will have a lower HELOC rate.
- DTI: Most lenders want to see a debt-to-income ratio of 43%, and lower is better.
- This is the ratio between your gross monthly income and your debt payments.
HELOC Credit Requirements
Prime Credit: You should anticipate meeting the following HELOC credit score criteria in 2024. Most HELOC lenders mandate a minimum credit score of 620. This implies that you’ll need at least a 620 score, though borrowers with scores of 680 or higher typically secure the most competitive HELOC rates.
Fair to Low Credit: For borrowers that have credit scores between 580 and 620, there are a group of trusted lenders that offer HELOC loans for fair credit. If you have a credit score between 500 and 579, you will need a low credit HELOC. There are a few of these types of home equity credit line programs available but the HELOC rates are usually a few percentage points higher.
HELOC Income Requirements
There’s no fixed income threshold for a HELOC or home equity loan, but you must earn adequately to satisfy the debt to income ratio requirement for the desired loan amount. Additionally, you’ll need to demonstrate a consistent income stream. Most HELOC lenders are looking for the borrowers to be at the same job for at least 24 consecutive months.
Although there’s no standardized minimum income prerequisite for HELOCs, lenders evaluate your individual cash flow and various factors to assess your capacity to repay any debts accrued on the credit line. Income and employment verification for HELOC loan applicants typically entails submitting pay stubs or tax returns.
HELOC DTI Requirements
When seeking a home equity line of credit, banks and lenders scrutinize your debt-to-income (DTI) ratio as a gauge of your repayment capability. This ratio contrasts all your regular monthly loan and credit card payments with your gross monthly income. Most HELOC lenders prefer a DTI of under 43%.
For example, if your average monthly income is $5,000 a month and your monthly housing and debt obligations total $2,000, then your debt to income ratio would be 40% and thus meeting the HELOC DTI requirements to qualify for a home equity line of credit.
HELOC Loan to Value Requirements
Typically, to be eligible for a HELOC, you require an loan to value ratio of 85% (LTV) or lower. For instance, if your home is valued at $600,000, and your remaining mortgage balance is $450,000, your LTV ratio would be 75% ($450,000 represents three-quarters of $600,000). With this example, the borrow would have 10% of the home’s equity available so they could take out a HELOC line of credit for $60,000.
Most conservative banks and credit unions will require 20% equity with their prime-rate HELOC offers, which means they are offering 80% LTV credit lines.
There are a few HELOC lenders that offer 90% LTV HELOCs but you will need at least a 680 credit score and the HELOC interest rate will be elevated slightly.
HELOC Cash Out Requirements
In most cases, lenders will not limit the amount of cash the borrower can take out of the HELOC. So if you are approved for a $100,000 HELOC loan, that means you can take out $100,000 in cash. Again, you only pay interest on the amount you borrow with a HELOC.
It is common for banks, credit unions and mortgage lenders to require a minimum draw amount when you open a HELOC account. The minimum draw amount ranges from company to company , but $1,000 minimum HELOC draw seems to be the most common.
A home equity line of credit (HELOC) allows you to take out the cash you need at a reasonable interest rate. It is even better to think about a HELOC in the near future because interest rates are expected to drop later this and early next year. How do you qualify? Keep reading to learn HELOC requirements for 2024, then speak to one of our loan professionals to get prequalified. We will find you the best program for your needs and finances!
Qualifications for a HELOC Loan
There are several things you need to qualify for a HELOC:
Enough equity in the home: Most lenders want to see at least 15% or 20% equity in the house, but more is better. Look at your most recent mortgage statement to see what your balance is. Then, find out the rough value of your home by looking at Zillow or other online sources. This will give you an idea of how much equity is in your property. You will need to have an appraisal done to get the latest home value when you apply.
Enough income: The lender will check your income to see if you have enough to pay your first mortgage, HELOC, and other debts. The lender will want to see a debt-to-income ratio of less than 43% in most cases.
Good enough credit: The higher your credit score, the better HELOC rate you will receive. Most lenders want a 680 or higher score, but 720 can get the best rates. You might get approved with a 640 score, but the rate may be higher.
Property appraisal: How much you can borrow depends largely on the home’s value. So, part of the process is usually to have a new home appraisal. This could cost you $300 or $400. But some lenders may not require an appraisal in every case.
Many homeowners want to get a HELOC, as they may already have a low rate on their first mortgage. 2024 could be the perfect time for a HELOC because rates may drop soon, and home values are still high. Talk to your lender today to find out the best HELOC options!
How Does a HELOC Work?
With a home equity line of credit (HELOC), you may be able to access the cash you want at a reasonable interest rate.
Before getting a HELOC, you should learn about these useful loans and want to look for.
If you have questions about HELOCs or want to apply, our helpful loan professionals are waiting for your call.
A HELOC is a second mortgage and revolving credit line with an interest rate that varies.
It works like a credit card, but your line of credit is based on the equity in your home.
A home equity line of credit lets you take out and repay money as you need it, during the draw period of 10 or 20 years. During this time, you pay interest-only. When the draw period concludes, you pay interest and principal. So, for most people, HELOC payments rise over time. The rate also can vary based on the LIBOR Index or other market index.
When you take out a HELOC loan with your lender, you will receive a line of credit based on how much equity is in your home. Most lenders allow borrowers to access up to 80% or 85% of their property value, minus what is owed on the first mortgage.
During the draw period, you can pull out money with checks, but many lenders now provide a debit card for easy use. After the draw period is over, you are not able to access funds anymore and will need to pay interest and principal. With a HELOC loan, you only pay interest on what you need.
How Much Can You Get with a HELOC Line of Credit?
It depends on the home’s value and how much equity you have. Most lenders let you borrow up to 80% of the home’s value, but some may allow 85%.
Suppose your home is worth $300,000 and you have a $200,000 balance on the first mortgage. There is $100,000 of equity there, so a typical lender may let you borrow up to $80,000.
A benefit of the HELOC is you don’t have to use that $80,000 all at once. You can use part of it, then wait to use more. Or, you could hold onto the entire HELOC for an emergency; this is a common use for some borrowers. You only pay interest on the money you have taken out. On the other hand, with a home equity loan, you would receive all the money at once and pay interest on the full amount from day 1.
Easy. A HELOC gives many homeowners access to a lot of money (equity) at a relatively low rate. It is estimated that US homeowners have tens of trillions of dollars in equity in their homes. Interest rates are higher than a few years ago, so few homeowners are tempted to do a cash-out refinance with their first mortgage. A HELOC makes more sense for people who want to keep their mortgage in place, but still get low-interest cash. Read more about the FTC tips for getting an equity line.
What Are Typical HELOC Rates In 2024?
One of the best reasons to get a HELOC in 2024 is you can frequently get a more competitive rate than with unsecured loans, such as credit cards and personal loans. What your rate will be depends on many factors: credit score, amount borrowed, DTI, income, loan-to-value, etc.
However, in February 2024, the typical HELOC rate was between 8% and 10% for most borrowers. The average rate was 9.12%. Taking out $100,000 with a 90% LTV averaged a 9.82% rate, and 60% LTV for $100,000 was 9.07%. Bear in mind that HELOC rates vary, so your rate could increase or decrease. Potential good news is that many experts believe the Fed will reduce rates this year or next year, which could potentially lead to a lower rate for HELOCs taken out today.
HELOCs are popular in 2024. People have more equity in their properties than ever, and with high interest rates, a HELOC may be the cheapest way for many people to borrow money. Also, there are signs that rate hikes may be behind us, and some believe the Fed will soon begin making cuts. This may mean that your HELOC interest rate could fall in the future.
If you are interested in a HELOC or want more information, just reach out to one of our lending professionals today. We’ll find the best program for your needs.
HELOC vs Home Equity Loan
Many homeowners in America in 2024 are sitting on tens of thousands or more in home equity. Instead of that money sitting in the property until you sell, why wait to enjoy it?
You can get a low-interest second mortgage – such as a HELOC or home equity loan – and use your equity for things you need.
Whether it’s an updated kitchen, addition to your house, or paying off credit card debt, a second mortgage can help you reach your financial dreams.
Learn all about HELOCs and home equity loans below. Then, get in touch with one of our loan advisors to review your options and apply.
Home equity is the value of your property minus what you owe on the mortgage. Most homeowners get equity in the property by placing a down payment on the property when they buy it. The equity in your home fluctuates over time as you make your payments and as the market value rises. Making improvements to the home also can affect the value and your amount of equity.
What Is a Home Equity Loan?
A home equity loan is a fixed-rate second mortgage that is secured by the home. Most lenders allow you to borrow no more than 80% of the home’s value with a home equity loan. With a home equity loan, you receive a lump sum and pay a fixed rate for five, 10, or 15 years. The fixed rate you qualify for depends on your credit, debt to income ratio, and income.
After you receive the lump sum, you will start paying interest on the borrowed funds. Most home equity loans have fixed rates and are paid monthly. It is important to make your payments on time or you could lose your home.
A home equity loan may be a good fit for you if you want a fixed rate and need all of the money at once. For example, if you need to pay off a major healthcare expense, you may want to get a home equity loan. You also may like a home equity loan if you are conservative financially and want a fixed rate.
What Is a Home Equity Line of Credit?
Another option is a home equity line of credit or HELOC. Like a home equity loan, a HELOC is a second mortgage secured by your home. However, a HELOC is a line of credit based on your home’s equity. Once approved, you can take out what you like, up to your credit limit. You only pay interest on the money you have taken from the credit line.
Most home equity credit lines are open for withdrawals for 10 years. After the draw period is over, you must pay interest and principal. During the draw period, you only pay interest. The HELOC has a fluctuating interest rate. It can go up or down with market interest rates. If you are ok with more financial risk, a HELOC can be a good solution. You could have a lower rate than a home equity line, but it also can go up at any time.
HELOCs are often best for those who have expenses that need to be paid over time. For example, if you are doing a major home renovation over a year, you can pull money out of the HELOC over time. That way,
Which Is Better a HELOC or Home Equity Loan?
Choosing the best home equity product comes down to your needs and situation. HELOCs usually have lower rates and more flexibility with payments. But the rate can go up. However, if you need money all at once and like a fixed rate, a home equity loan may be better.
One of the best ways for a homeowner to get low-interest cash is through a second mortgage. Consider a HELOC if you need cash over time and prefer lower rates, with the possibility they could rise. On the other hand, a home equity loan provides a lump sum at a fixed rate, which means predictable payments for the entire loan term.
Our loan experts can review HELOC and home equity products with you today to find the perfect loan for you!
