A home equity line of credit, or HELOC, provides a financial cushion using your home as collateral. A HELOC works like a credit card in that once you use funds, you have to make monthly payments that include interest; however, if you don't use the money, no payments are due and no interest is charged. Lenders typically allow you to borrow up to 85 percent of the equity in your home. Many couples choose to get a home equity line of credit before they need it and just not use it unless emergencies pop up.
Get a copy of your credit report. You can go to AnnualCreditReport.com and obtain one for free. Check for errors or negative entries and get those corrected before applying for a HELOC. The amount of home equity credit you receive will be based, in part, on your credit standing. If your credit report contains a legitimate unfavorable entry, such as an unpaid debt, late payments or a court-ordered judgment against you, be prepared to explain it at the time of the loan application.
Determine your equity. The equity is the difference between your home's present appraised value and the amount you still owe on the mortgage.
Interview several lenders for the best rates. All HELOCs are not created equal. It is important to ask questions about minimum withdrawal requirements, interest, time lines for repayment and other issues that will have a bearing on which lender you chose to provide your line of credit. An important thing to ask about is the margin. Just because your line of credit starts out with a low interest percentage doesn't mean it will stay low. Discuss the total financial ramifications of utilizing the line of credit, and compare rates at several institutions.
Fill out the application. The lender will require certain documents, such as proof of income, current appraised value and credit. Ask the lender for a list of things that you need to provide and gather them together. The lender will pull your credit report and verify your income but still may require a paycheck stub or other income evidence when you file the application. Many lenders have an online application process.
Sign the approval paperwork and receive the checks or credit card provided by the lender. Guard the checks and credit card carefully. If your home is appraised at a later date for more than was used for the line of credit, approach the lender to reevaulate and increase your available credit limit.
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