For homeowners looking for access to some extra cash, a home equity line of credit, or HELOC, is often an attractive choice. A HELOC functions much like a credit card: A lender extends a credit line, which you can use to renovate your home, make a large purchase, or even take a far-flung vacation.
Consider the following steps to getting a HELOC:
You’ll generally need to have accumulated 20% or more equity in your home to qualify for a HELOC. In other words, what you still owe on your mortgage must be 80% or less of your home’s current market value. The average price of a home in Cincinnati these days is around $200,000.1 To qualify for a HELOC on that “average” home, you’d therefore have to have a mortgage balance of less than $155,200.
Unfortunately, having equity in a home isn’t always enough to qualify for a HELOC. You’ll also need to demonstrate a low debt-to-income ratio, which is how lenders compare the amount of debt you already have to your ability to pay it off based on your income. What counts as low varies by lender, but typically ranges from 33% or lower for some lenders to as high as 50% and below for others. And you’ll generally need a credit score of at least 660, though that threshold may be higher or lower, depending on your lender and situation.2 These factors, plus the amount of equity you have in your home, will determine how much credit lenders are willing to offer you.
Even though you’re borrowing against your home with a HELOC, you don’t have to use the same lender you used when you took out your mortgage. Take the time to meet with multiple lenders around the city and find out what they can offer. Every bank has different standards for how much money you can take out in a mortgage loan compared to the assessed value of the house, also known as the loan-to-value ratio. So, the amount you’re offered may vary by lender. Carefully consider how much you want to borrow and make sure your lender can meet your needs.
The terms of HELOCs can vary quite a bit. Make sure you ask the following when considering any HELOC:
If there is anything you don’t understand about a loan’s terms, always ask your loan officer to clarify. Then you can move ahead confidently, with an extra source of financing for your goals.
If you're interested in a HELOC, learn more about First Financial's options.
1 September 2020, https://www.redfin.com/city/3879/OH/Cincinnati/housing-market
3 Rates and terms vary depending on lien position, occupancy, loan-to-value, property type, credit score, and debt-to-income. $75 annual fee after first anniversary. The applicable interest rate is based on loan amount, credit score, and term. The applicable interest rate is indexed to the Wall Street Journal (WSJ) Prime Rate and is subject to change with the WSJ Prime Rate. The interest rate will not exceed 25%. For a fee of $100, borrowers may lock all or a portion of the outstanding balance for a fixed term at a fixed rate. Home Equity Lines of Credit have a Draw Period and Repayment Period. During the Draw Period, the minimum monthly payment is interest only. At the end of the Draw Period, the Repayment Period begins. During the Repayment Period, the principal balance, excluding previously locked amounts, is amortized over a period of 15 years, which may increase the monthly payment previously due. No closing costs on Home Equity Lines of Credit on owner-occupied primary residences or second homes. The “no closing cost option” on Home Equity Installment Loans will increase the interest rate. Borrowers pay closing costs, including, but not limited to, third party expenses related to government filing fees and vendor services for flood, title, and appraisal reports.
The information on this page is accurate as of January 2021 and is subject to change. First Financial Bank is not affiliated with any third-parties or third-party websites mentioned above. Any reference to any person, organization, activity, product, and/or service does not constitute or imply an endorsement. By clicking on a third-party link, you acknowledge you are leaving bankatfirst.com. First Financial Bank is not responsible for the content or security of any linked web page. Member FDIC / Equal Housing Lender.
APR = Annual Percentage Rate. All loans subject to credit review and approval and rates are subject to change without notice.
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