A home equity line of credit, commonly called a HELOC, may seem like a unique type of loan. Instead of getting a big check up front when the loan qualifies, you get a checkbook and you get to decide how much -- or how little -- you borrow, up to the line's limit. Underneath the unique disbursal method, a HELOC is essentially just a second mortgage. Qualifying for it requires a similar process to any other house loan, and although each lender may have its own requirements, most HELOCs follow broadly similar outlines.
To qualify for a HELOC, you'll need to provide copies of certain documents that can include pay stubs, W-2s, tax returns, homeowners insurance policy, tax bills, credit reports, recent appraisal and the deed to your house.
Personal Financial Data
HELOC lenders want to know that you're a good borrower, so may require similar documentation to when you applied for your mortgage. You may have to submit pay stubs and W-2s as well as tax returns. The lender may also want to know about your other debts and your other assets, so have statements handy to supply when needed.
Records to Prove Homeownership
Since your lender is offering you a HELOC that is tied to your house, it will need to know that your ownership position is secure. To this end, it may request supporting documentation about your house. This can include information on your homeowners insurance policy, a mortgage statement, and a tax bill. Your lender may also want to see a copy of your deed and of your title insurance.
Credit Report for Underwriter Approval
Just like with any other mortgage, HELOC lenders typically pull your credit report before making a loan. An equity line's claim on your house comes after your first mortgage, so the HELOC lender is taking a bit more risk than your first mortgage lender. You can usually expect a HELOC lender to look carefully at your credit when it underwrites your loan.
Appraisal to Determine Value
Your lender will usually order an appraisal of your home. The lender uses the appraisal, together with your mortgage statement and the lender's internal standards, to determine the maximum size of your HELOC. For instance, if your house appraises for $190,000 and your lender will give you a maximum combined loan-to-value ratio of 85 percent, that means that you can owe a total of $161,500 on your first mortgage and your HELOC. If you still owe $111,500 on your mortgage, you'd qualify for a $50,000 HELOC, assuming that you had enough income to cover it.
- Department of Commerce Federal Credit Union: Home Equity Line of Credit Application Checklist
- Bankrate: Home Equity Line of Credit Rates
- PenFed. "Home Equity Line of Credit." Accessed June 12, 2020.
- PenFed. "Membership Disclosures." Accessed June 12, 2020.
- U.S. Bank. "Home equity FAQs." Accessed June 12, 2020.
- U.S. Bank. "Home Equity Line of Credit (HELOC)." Accessed June 12, 2020.
- Bank of America. "Home Equity Assumptions." Accessed June 12, 2020.
- Connexus Credit Union. "Home Equity Loans & Lines of Credit." Accessed June 12, 2020.
- Connexus Credit Union. "Connexus Membership." Accessed June 12, 2020.
- Bank of the West. "Important Terms: Equity Choice Line of Credit." Accessed June 12, 2020.
- Bank of the West. "Home Equity." Accessed June 12, 2020.
- TD Bank. "Home Equity Line of Credit Rates." Accessed June 12, 2020.
- TD Bank. "Home Equity Line of Credit." Accessed June 12, 2020.
- IRS. "Real Estate (Taxes, Mortgage Interest, Points, Other Property Expenses) 2." Accessed June 12, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.