How Much Equity Do I Need for a HELOC?
A Home Equity Line of Credit (HELOC) allows you to borrow against your home equity as needed (like a credit card) and repay the loan in monthly payments. The amount you can borrow will depend on how much equity you have in your home.
Bellco Federal Credit Union (Bellco FCU) is a member-owned, not-for-profit federal credit union in Berks County, PA, that caters exclusively to members and offers a variety of affordable financial services. We provide a safe place to save and borrow at reasonable rates with exceptional customer service.
Membership in Bellco FCU is open to people who live, work, worship, or attend school in Berks County, PA. Simply open a Member Savings account with as little as $5, and set up your membership in a few simple steps.
Once you are a member, your immediate family members will be eligible to join too and take advantage of competitive rates for mortgages, personal loans, credit cards, and the many other services we offer.
What is a HELOC?
A HELOC, or Home Equity Line of Credit, is a revolving line of credit that is secured with the equity in your home. It has a draw period and a repayment period.
During the draw period (typically 5 or 10 years), you can withdraw funds from the credit line up to your credit limit. Withdraw as much as you need, when you need it, and make a minimum payment on the amount withdrawn.
If you partially or completely repay the line of credit during the draw period, you may make additional withdrawals. However, even if you do not use all of the available funds, you will not be able to make withdrawals after the draw period closes.
During the repayment period, you will be required to make monthly principal and interest payments until the entire loan has been repaid (typically up to 10 years).
How Much Can You Borrow?
Most lenders limit home equity borrowing to 80% to 90% Loan-to-Value (LTV). This is determined by dividing the balance owed on your mortgage (and any the other loans secured by your property) by the appraised value of your home. Based on the following example, you may qualify for a Home Equity Line of Credit in the amount of $35,000 or less:
Home’s current appraised value: $200,000
80% of appraised value: $160,000 ($200,000 x 0.8)
Amount owed on the mortgage: $125,000
80% of home’s value minus amount owed: $35,000 ($160,000 - $125,000)
The lender will also consider your credit score, monthly income and debt-to-income ratio to determine how much equity you need for a HELOC.
Before you decide, Bellco FCU will help you evaluate all of your options and their pros and cons based on your personal situation. If you need a lump-sum of money right away, such as to pay for a dream vacation or an unexpected large expense, you may want to consider a traditional Home Equity Loan.
To learn more about how much equity you need for a HELOC or whether a different type of loan may be a better choice, Bellco FCU has the tools, information and expertise to help you make the right decisions. Contact us today!