How to Get a Home Equity Line of Credit with a Co-Applicant

If you’re a homeowner, you may have wondered how to get a home equity line of credit to access the equity in your home. While some may think that equity guarantees you access to a home equity line of credit, or HELOC, it does not mean you qualify for one. Learn more about what a HELOC is and how it works.

To qualify for a home equity line of credit, you’ll need more than equity in your property. Your current income level, credit score, and credit history all play a part. A lender may deny your HELOC application because of your income level or a red flag on your credit report.

While low income and poor credit could be roadblocks, there are ways to boost your HELOC approval chances. Here, we’ll cover how to get a home equity line of credit by applying with a co-applicant.

How to Get a Home Equity Line of Credit with a Co-Applicant

Your co-applicant, sometimes referred to as the co-borrower, is a trusted person who’ll share the liability for repaying your home equity line of credit. The co-applicant assumes equal ownership, payment and overall responsibility for the loan payments.

When considering how to get a home equity line of credit, you might seek out a reliable co-applicant with a solid credit history or a higher income than yours to improve your approval chances. Often, people choose to co-borrow with a partner or spouse to qualify for a larger loan than either one of the individuals could get on their own.

How a Co-Applicant May Help You Get a HELOC 

Having a co-applicant on a home equity line of credit application could benefit you as the borrower. A co-applicant with good credit could help a primary borrower with shakier credit get HELOC approval. A co-applicant may also help secure it at a lower interest rate. Not only that, you might be able to access more equity in your home by applying for a HELOC with a co-applicant.

If you’re thinking about how to get a home equity line of credit to consolidate debt or pay for home renovations, consider adding a trusted co-applicant to your HELOC application to increase your approval chances.

Read more: How to Get a Home Equity Line of Credit During COVID-19

Retirement Strategies: 3 Ways to Use a HELOC During Retirement

Conventional wisdom says that entering retirement with no debt is the goal when it comes to retirement strategies. Sure, that may be possible for some people, but there are other retirement strategies to consider should you find yourself in a different spot during your golden years. 

Before we get into the pros and cons of using a home equity line of credit, or HELOC, in retirement, it’s crucial to note that a HELOC is a secured form of credit. Specifically, it’s secured by your home. That means, if you fail to make your HELOC payments, you may risk losing your home. Keep this in mind when deciding if a HELOC is the right option for you. You should consult your tax advisor and/or attorney to understand the tax and legal implications of the strategies and financial products in this article.

Planning for Retirement as a Homeowner

Estimates vary, but some financial advisors posit that most people will need to have saved enough resources to spend between 55% and 80% of their preretirement income each year to maintain their current lifestyle and habits (like traveling and dining out) during retirement. Of course, not everyone will be able to accumulate that much wealth in a 401(k) or IRA. Having at least one large asset to utilize during retirement, like a (paid-off) home, could be beneficial. 

Here are 3 ways homeowners might consider using a home equity line of credit to prepare for, and thrive during, their retirement. 

1. Limit Pre-Tax Retirement Account Withdrawals

It’s likely that most, if not all of the money in your retirement plan is pre-tax. This means that when you withdraw those funds, you create a taxable event, increasing your taxable income every year in which you pull out retirement money. If you retire and draw money from your 401(k) or IRA before age 59 ½, you may also face an early withdrawal tax penalty. 

Using the equity in your home through a HELOC is one of the available retirement strategies that may allow you to leave some or all of your pre-tax retirement money untouched, at least for a period of time, while you lean on a HELOC to finance your expenses. This allows your retirement accounts to continue earning dividends and possibly grow in value.

Keep in mind, though, there are risks associated with a HELOC. The money you draw from a HELOC must eventually be paid back. Because the line of credit is secured against the equity in your home, you risk losing your home if you don’t make those HELOC payments.

2. Cover Unexpected Retirement Expenses

While accessing money from a home equity line of credit is not income, drawing from a HELOC is one of the retirement strategies that could help finance unexpected expenses, like medical bills or substantial home repairs, without drawing directly from your retirement savings nest egg to pay for the expense. 

If your social security, investment dividends, and/or pension payments won’t be enough to cover life’s inevitable emergencies during retirement, using the equity in your home at an interest rate typically lower than credit cards or personal loans may be an option to consider. With a HELOC, you can spread those payments out over time, rather than having to pay for the expense upfront.

3. Upgrade Your Home

Chances are, you’ll own your home outright by the time you reach retirement age. This not only means that you could have plenty of equity to tap into, but you may also be more inclined to stay put instead of selling, moving, buying a new home, and starting anew with another mortgage payment. 

Therefore, one of the retirement strategies in which a HELOC could prove helpful is to upgrade your home. Using the equity in your home to make it more accessible and comfortable could make your retirement years more enjoyable. After all, what better time than retirement to build that kitchen you’ve always dreamed of?

How a HELOC Works

Before making any decisions about how to fund your dream retirement, it’s important to understand all of your options when it comes to possible retirement strategies. While a HELOC may help some retirees finance expenses, make home improvements, and put off 401(k) and IRA withdrawals, using the equity in your home means taking on new debt, which doesn’t come without risks. Use this HELOC calculator to discover how much you may be able to borrow and what it will cost. 

Read More: Retirement Planning During An Uncertain Economy

This article is for educational purposes only; the information and strategies presented are not intended to be, and should not be considered, tax, financial or legal advice. The strategies mentioned in this article are general in nature and not directed to the specific objectives, needs, or tax or financial situation of any particular person. The financial products and strategies discussed in this article may have tax and legal consequences. You should consult your tax advisor and/or attorney to understand the tax and legal implications of the strategies and financial products mentioned in this article, and whether a HELOC makes sense for your specific financial situation and goals.  

BBVA USA offers bank-branded version of Prosper’s digital HELOC platform

Announcement comes a year after the two first announced collaboration to build HELOC digital solution

BBVA USA first bank to power its digital HELOC application using Prosper’s technology

BBVA USA, the U.S. subsidiary of Madrid-based BBVA, today announced it is offering a digital Home Equity Line of Credit (HELOC) through its website, powered by Prosper, a leading online marketplace for consumer loans. Prosper’s digital HELOC platform, which was developed to simplify the process of applying for and obtaining a HELOC, is now available to BBVA USA customers in select states via the BBVA-branded version of the platform.

The announcement comes a year after the two collaborated on and launched a digital HELOC solution that provided customers the ability to complete an online application in minutes and receive instant pre-qualification. Early results already indicate that the digital solution is helping BBVA close HELOCs 14 days faster on average when compared to the Bank’s own turn times on applications submitted in other channels.

This announcement makes BBVA the first bank partner to use Prosper’s technology as part of its own website. Customers have been using the digital application for over a year through Prosper’s website with BBVA as its exclusive bank partner in Alabama, Texas, Florida, New Mexico, Colorado and Arizona.

“We are excited to expand our relationship with Prosper by using their digital platform to power our online HELOC application process, as we both strongly believe that digital can lend convenience, speed and efficiency to customers’ banking experiences,” said BBVA USA Head of Mortgage Banking Murat Kalkan. “Customers’ expectations are continuously being shaped by faster delivery and more convenience like they experience in other industries, so naturally they demand the same from financial services. This partnership is well aligned with the core of our strategy, which aims to meet rapidly evolving customer expectations. Now, more than ever, customers can quickly and efficiently tap into the equity they have in their homes, which can provide much needed peace-of-mind knowing they have access to the money they may need for home improvements, debt consolidation or other major financial needs.”

“Consumer spending on home improvement has risen over the past six months as people spend more time at home during the pandemic. A home equity line of credit is a great option for financing a large project as it offers flexibility and access to low rates,” said David Kimball, CEO of Prosper. “With Prosper’s digital HELOC platform, it’s easier than ever to apply online, get an immediate offer, and secure a HELOC. We’re thrilled to extend our partnership with BBVA to now have our digital experience available to BBVA customers through their website.”

“The future of home equity lending is part of the race to better customer experience, so our partnership with Prosper and aspiring to provide a seamless experience to our customers in their HELOC applications is one of the core drivers of our strong growth in Home Equity business even as we see a lower overall production in the industry.” said BBVA USA Director of Home Equity Originations David Garcia Hernandez. “We are looking forward to unlocking the true potential of Home Equity through this platform.”

Key benefits of the HELOC platform include:

  • An online application that can be completed in minutes with instant offers and information about rate and prequalification status
  • Easy access to a dedicated client services team that can help users get immediate answers to their questions and understand the benefits of getting a HELOC
  • Electronic documentation uploads and disclosure delivery
  • Ability to apply from anywhere without the need to visit a branch

BBVA and Prosper began working together in 2019, knowing that each could leverage its own strength to make the process of applying and obtaining a HELOC quicker and easier. BBVA contributed its understanding and experience in equity lending, while Prosper lent its acumen in digital consumer lending and creating great customer experiences.

“We always say that consumers are the ones who benefit when banks and tech come together, and it’s something we regularly put into practice. Since our Prosper powered HELOC application launched in early September, we’ve seen a significant improvement in the number of customers who complete the online application, underscoring the power of technology to improve the customer experience,” Kalkan said. “And in a time where banks are increasingly pulling back on their HELOC offerings, for us to come together and make it available more broadly, more conveniently and more efficiently says something about our commitment to customers and their needs.”

To learn more about the digital HELOC product available from BBVA, visit https://www.bbvausa.com/loans/home-equity-line.html.

About BBVA USA

In the U.S., BBVA is a Sunbelt-based financial institution that operates 637 branches, including 328 in Texas, 88 in Alabama, 63 in Arizona, 61 in California, 43 in Florida, 37 in Colorado and 17 in New Mexico. The bank ranks among the top 25 largest U.S. commercial banks based on deposit market share and ranks among the largest banks in Alabama (2nd), Texas (4th) and Arizona (6th). In the U.S., BBVA has been recognized as one of the leading small business lenders by the Small Business Administration (SBA) and ranked 14th nationally in terms of dollar volume of SBA loans originated in fiscal year 2019.

BBVA and BBVA Compass are trade names of BBVA USA, a member of the BBVA Group. BBVA USA, Member FDIC and an Equal Housing Lender. NMLS #402936  

About Prosper Marketplace

Prosper’s mission is to advance financial well-being. The company’s online marketplace lending platform connects people who want to borrow money with individuals and institutions that want to invest in consumer credit. Through Prosper’s flagship personal loan marketplace, borrowers get access to affordable fixed-rate, fixed-term personal loans. Investors have the opportunity to earn solid returns via a data-driven underwriting model. To date, over $17 billion in personal loans have been originated through the Prosper platform for debt consolidation and large purchases such as home improvement projects, medical expenses and special occasions. Through its new digital HELOC platform, Prosper is using its expertise in consumer lending to improve the process of applying for and securing a home equity line of credit, as well as deepening its commitment to simplifying consumer finance and advancing financial well-being.

Prosper Marketplace, Inc. was founded in 2005 and is headquartered in San Francisco. The platform is owned by Prosper Funding LLC, a subsidiary of Prosper Marketplace, Inc. Personal loans originated through the Prosper marketplace are made by WebBank, member FDIC. Visit www.prosper.com and follow @Prosperloans to learn more. Prosper notes are offered by Prospectus.

Prosper Marketplace, Inc. NMLS#111473 (http://www.nmlsconsumeraccess.org)
All HELOCs are underwritten and issued by our banking partner.

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HELOC Home Improvement: The Best Home Improvements to Increase Value

Of course you want your home to be worth as much as possible should you ever sell it, but the other benefit of making some of the best home improvements to increase value is that those upgrades, everything from a fresh coat of paint to a new kitchen, may also make you happier while living in the property. But not all renovations are created equal when it comes to boosting a home’s eventual selling price. Here’s a look at eight opportunities to use HELOC home improvement funds with the ultimate goal of increasing property value.

Painting

From exterior doors to kitchen cabinets, paint color may raise the price of your house by thousands, making painting one of the best home improvements to increase value. This is especially important to realize because the cost of buying paint and/or hiring a professional painter pales in comparison to the price tag on other home repairs and renovations. Even something as simple as painting your front door could net you more at settlement because it’s said that homes with charcoal, smoky, or jet black doors sell for $6,271 more than expected. Conversely, dark red or brown interior walls could cause your home to fetch $2,310 less than you’re hoping. In short, use HELOC home improvement funds wisely when shopping for paint!

Minor Bathroom Remodel

Whether you choose to reglaze or replace that old tub, retile the floor, or put in a brand new toilet, sink, or vanity, a minor bathroom remodel could be one of the best home improvement decisions you’ll make. You might just recoup the entire cost of the renovation, and turn a tidy little profit too!

Garage Door Replacement

The average cost of a new garage door is $3,600 and studies show that you may get back nearly all of that cost when selling your home. This means that a garage door replacement could be a good use of your HELOC home improvement money. Curious about using your home’s equity? Here’s everything you need to know.

Landscaping

Real estate is all about location, location, location but it’s equally about curb appeal. One of the best home improvements that could increase the value of your home is to spruce up the landscaping, especially in the front yard. Planting new trees, laying down fresh sod, installing a dramatic fountain or adding a pop of color may make a stellar first impression for potential buyers when you’re ready to sell.

Manufactured Stone Veneer

Adding manufactured stone veneer to the front of your house is one of the best home improvements to increase value because it has the potential to pay for itself in sending your home’s curb appeal through the roof. This classy look on a portion of your exterior walls adds a touch of elegance and could add more than a few thousand dollars to your asking price!

Entry Door Replacements

One of the more affordable home improvements to increase the value of your property is a replacement front entry door. With a relatively small price tag (the average cost is under $2,000) you can expect to increase the value of your home while recouping nearly 70% of the renovation expense.

Kitchen Remodel

With access to HELOC home improvement funds, you could spruce up the space where the mealtime magic happens, and recoup, if not all, very close to every penny spent on a minor or major kitchen remodel. You don’t have to take your kitchen down to studs to beef up the resale value of your property, even a fresh cabinet paint job and new recessed lighting could do the trick.

Replacement Windows

Not only will new windows make your home look nice without breaking the bank, but the economic benefits through better energy efficiency could be huge when looking to use a HELOC for a home improvement that may increase the value of your property.

Are you considering applying for and using a home equity line of credit for upcoming home improvements? Use our HELOC calculator today to see how much of your home’s equity you can access.

Read more: What is a HELOC and how does it work?

Cashing Out a 401k? Why It May Not Be The Best Emergency Fund Option

As we’ve discussed previously, there are several ways to build an emergency fund to help see you through a seismic life event or an urgent financial situation, but is cashing out a 401k one of the best options for an emergency fund?

The Financial Impact of Cashing Out a 401k

Cashing out a 401k may result in several consequences, some immediate and others that you likely will not feel for many years. Typically, in pre-COVID times, withdrawing from a 401(k) before the age of 59½ came standard with the following:

  • A 10% early withdrawal tax penalty.
  • Mandatory federal tax withholding of at least 20%.
  • The withdrawn amount being taxed as ordinary income, which may cause more taxes being owed, depending on your total yearly earnings, deductions, tax bracket, and other factors.

The CARES Act, however, changed all this.

Under the CARES Act, those impacted by the pandemic are permitted to access up to $100,000 from their 401k and other retirement plans with fewer consequences.

Before we consider whether cashing out a 401k is a viable emergency fund option, let’s dig deeper into what the IRS is now allowing regarding access to your 401k under the CARES Act:

  • The CARES Act provides for expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans (such as 401k and 403b plans, and IRAs) to qualified individuals.
  • The 10% early withdrawal tax penalty does not apply to coronavirus-related distributions made in 2020.
  • There are no longer mandatory federal tax withholding requirements.
  • Cashing out a 401k in 2020 for coronavirus-related reasons will allow the tax burden to be spread out over a three-year period, starting with the year in which you receive the distribution. The IRS provides this example: if you receive a $9,000 coronavirus-related distribution in 2020, you would report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022, while going on to note that you do still have the option of including the entire amount as ordinary income in the first year.
  • Should your finances improve after cashing out a 401k, you may repay all or a part of the amount withdrawn within three years of the date of distribution, and then claim a rebate on any taxes paid on the repaid portion of the 401k cash out.
  • 401k loan rules have changed under the CARES Act too. Previous retirement plan loan rules limited borrowers to accessing 50% of their vested balance as a loan but now plan participants can borrow 100% of their vested balance up to $100,000, and payments on 401k loans can be deferred for up to a year.

Is Cashing Out a 401k One of the Best Emergency Fund Options?

Should you have been impacted by the coronavirus pandemic, the CARES Act does make it easier and less painful to withdraw from or borrow against your 401k retirement plan. In those specific cases, cashing out a 401k may be a viable emergency fund option, however if you do not choose to repay the amount withdrawn under those new guidelines, you will still be in a position of having less funds available for your future and a potentially significant tax bill due next April.

Whereas both using the equity in your home through a HELOC or slowly building up a savings account to serve as your emergency fund each come with less immediate and long-term economic impact, cashing out a 401k creates an immediate taxable event (and if under 59 ½ years of age, may also come with that 10% early withdrawal tax penalty). Cashing out a 401k may also significantly reduce the amount you will have for your retirement and that may potentially elongate your working years. This is because, while your investments may still be growing and compounding, you will have sold all or a portion of those investments in the cash out, thus creating less potential for growth over time.

The Biggest Cost of Cashing Out a 401k

Most financial advisors would agree that cashing out a 401k should be the last resort option for an emergency fund, even if the ordinary taxes due are spread out over three years and the early withdrawal penalty is waived. This is because the biggest cost of cashing out a 401k is, potentially, opportunity cost. In selling 401k investments to fund the withdrawal, you could end up missing out on long-term growth should the stock market recover and continue to flourish at its historical average rate (average annualized return of the S&P 500 Index between 1973 to 2016 was nearly 12%).

Of course it’s challenging to consider the far off future if the present day situation is dire, but do think long and hard about cashing out a 401k and the impact it will have on your ability to retire and enjoy your later years, before taking that step to provide yourself and your family with an emergency fund.

Read more: How to use home equity for debt consolidation.

HELOC vs. Second Mortgage: What’s the Difference?

It’s a common question, what’s the difference between a HELOC vs second mortgage? The short answer is, not a whole lot aside from verbiage.

A second mortgage is another loan taken against your property that’s already mortgaged. You’ll be borrowing again, not to buy a home this time, but against your home by using the equity you’ve built up by making your mortgage payments and/or that’s accumulated passively due to a potential increase in property value.

Mortgage vs Second Mortgage

Before we go further into the differences between a HELOC vs second mortgage, let’s examine how a first mortgage is similar and potentially unlike a second. Your first mortgage allowed you to borrow a large amount of money, in a single lump sum, to buy a home. In doing so, the lender will have placed a lien on your home which would allow them to seize the property should you not make your mortgage payments and/or default on that first mortgage.

A second mortgage is akin to the first in that once again a lien will be placed on your home but this time, only on the portion of your home that you’ve paid off and will borrow against — the equity you’ve built up that you’ll use as collateral for the second mortgage loan

With a second mortgage, you’re not borrowing to buy your home but instead, borrowing against the equity you have built up in your home. As with your original mortgage, the home will serve as collateral for the loan. It’s likely that multiple lenders will have liens against your home, one for the balance still owed on the first mortgage and another for the amount of home equity you have borrowed.

Why Consider A Second Mortgage?

A second mortgage provides you, the homeowner, with an influx of cash, for whatever purpose(s) that cash is needed. Maybe you want to consolidate credit card debt, pay off student loans or find the best way to finance home improvements. With a second mortgage, you may be able to access funds by borrowing against your home and using the equity you have accumulated in it.

The Difference Between a HELOC vs Second Mortgage

Now that you know how a second mortgage will differ from your first, and what you could do with the funds from it, let’s now take a look at the key differences when it comes to a HELOC vs second mortgage.

The difference, essentially, is language because your second mortgage will be processed as either a home equity loan or line of credit (HELOC). These are the two loan vehicles that can fund a second mortgage, and within the two there are differences.

Whereas a home equity loan will likely act similarly to your first mortgage, with a fixed monthly loan payment over a fixed number of years, taking a HELOC as your second mortgage offers the same kind of access to your home’s equity but with the added flexibility of making repayments only on the amount withdrawn from the line of credit. A HELOC also allows for continuous borrowing, as the amount accessible through the line of credit increases with each principal payment amount made.

The differences between a HELOC vs second mortgage may have been confusing but now you understand how the former can fund the latter. Find out more about how a HELOC works and how Prosper may help you access your home equity as a second mortgage.