How to Get a Home Equity Line of Credit (HELOC)

Have you heard a homeowner talk about how to get a HELOC to fund home improvements or put toward other major expenses? You may be curious about how to get a home equity line of credit or a home equity loan. A lender approves you to borrow up to a certain amount based primarily on your home equity and credit profile.  As long as you pay back what you use, you can draw from that pool of funds again and again.

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The amount you can borrow through a HELOC will depend on the amount of equity you’ve built in your home. You can usually get approved for up to 80% of the value of your home, minus the balance that you owe on your mortgage.

A HELOC usually has lower interest rates than other options like personal loans or credit cards. This makes it an appealing option for borrowers who need to fund home renovations, cover unexpected expenses, or pay for big purchases.

How to get a home equity line of credit (HELOC)

How to Get a HELOC

If you’re looking at how to get a HELOC, your first step should be to take a look at your qualifications. What will lenders see when they look at your financial profile?

Qualifications for HELOC borrowers

Before a lender approves you for a HELOC, they’ll want to know that you can afford to pay it back. One of the key factors they’ll consider is your credit score, a three-digit number between 300-850 that serves as a major factor for evaluating your financial health. The higher the number, the more responsible a borrower you are considered to be.

Credit Score Expectations

Naturally, the stronger your credit score is, the more likely you are to be approved for a home equity line of credit and to secure a lower interest rate. A good credit score is typically considered to be a score of over 700. However, it’s still possible to get a HELOC with a range of credit scores–just talk to your lender about your options and keep in mind that you will likely be charged a higher interest rate if your credit score is lower.

Equity Percentage

Most lenders will offer a HELOC that is 80% of your home’s value minus the amount you owe on your mortgage. So, for example, if your home is valued at $100,000 and you owe $25,000 on your mortgage, then you may be able to access a HELOC that is $80,000-$25,000 = $55,000

Rate Shopping

Once you have an idea of how much you can qualify to receive as a credit limit, start shopping around for approximate rates and compare the terms that lenders offer.

Not all lenders will be able or willing to give you an estimated borrowing total or interest rate before you file a formal application. Unfortunately, formal HELOC applications usually involve hard credit checks, and multiple applications for credit lines can hurt your credit score.

To protect your credit, start by looking at lenders that will give you a quote without conducting a hard credit check. Prosper, for example, can give you a personalized offer instantly with no impact on your credit score.

How to Get a HELOC: The Application

When you choose a lender and file an application, you’ll have to submit basic personal and financial data. This may include:

  • Contact information including your physical address
  • Two years or more of income documentation
  • Two months or more of bank and investment statements
  • Documentation of financial events such as divorce
  • Financial records for your owned property
  • The appraised value of your home

You don’t have to submit all of this at once, but you should plan to have it on hand for when your lender requests it.

Be aware that while Prosper offers a simple, online application, many lenders have a more complicated application process—for which you should allow extra time. After calculating your personalized offer, Prosper directs you to a simple online application. It takes just minutes to complete, and you can get your credit line in a matter of weeks.

Key Takeaways

  • A HELOC lets you borrow against the equity in your home.
  • If you have strong credit and equity in your home, you may be approved to borrow up 80% of your home’s value minus whatever you still owe on your mortgage.
  • To apply for a HELOC, you’ll need to submit basic financial documentation including income information and information about your property
  • The HELOC application process can be complicated, but Prosper makes it easy by letting you apply online.

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To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

Eligibility for a home equity loan or HELOC up to $500,000 depends on the information provided in the home equity application.  Loans above $250,000 require an in-home appraisal and title insurance.  For HELOCs borrowers must take an initial draw of $50,000 at closing. Subsequent HELOC draws are prohibited during the first 90 days following closing. After the first 90 days following closing, subsequent HELOC draws must be $1,000 or more (not applicable in Texas).

The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Spring EQ borrowers get their cash on average in 26 days. The time period calculation to get cash is based on the first 6 months of 2022 loan fundings, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications.

Spring EQ cannot use a borrower’s home equity funds to pay (in part or in full) Spring EQ non-homestead debt at account opening.  For HELOCs in Texas, the minimum draw amount is $4,000. To access HELOC funds, borrower must request convenience checks.

Interest rates may be adjusted based on factors related to the applicant’s credit profile, income and debt ratios, the presence of existing liens against and the location of the subject property, the occupancy status of the subject property, as well as the initial draw amount taken at the time of closing. Speak to a Prosper Agent for details.

Qualified applicants may borrow up to 95% of their primary home’s value (not applicable in Texas) and up to 90% of the value of a second home. Home equity loan applicants may borrow up to 85% of the value of an investment property (not applicable for HELOCs).

All home equity products are underwritten and issued by Spring EQ, LLC, an Equal Housing Lender. NMLS #1464945.

Prosper Marketplace NMLS Prosper Marketplace, Inc. NMLS# 111473

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