A HELOC requires an application process similar to a mortgage. A lender will look at credit score, employment history, monthly income, and debt. You will need to have equity in your home. To determine the percentage of equity you have in your home, refer to the formulas below.
Home’s equity = Appraised Value of Home – Mortgage Balance
Home’s equity in dollars / Appraised Value of Home = Equity Percentage
To determine the estimated maximum amount you could borrow, refer to the example below.
Say your home is valued at $200,000.
$200,000 * 85% = $170,000
Then subtract that amount by your remaining mortgage balance.
$170,000 - $120,000 = $50,000
$50,000 would be the maximum HELOC amount available to you. However, note that depending on credit score, debt-to-income ratio, and other information you may qualify for less.
HELOCs can be a smart financial resource when used correctly. They usually combine the benefits of revolving credit with lower interest rates, and in some cases, the interest is tax-deductible. Just remember, with a HELOC, you are using your home as collateral. This means your home could be at risk if the value drops or there is an interruption in income.
Terms may vary.
