Do you have a list of home improvement projects you'd like to get done to increase your home's value? From remodeling a kitchen or adding a pool, to opening up an outdated floor model, the costs add up quickly. However, the return on investment can be well worth it. Many are turning to a home equity line of credit (HELOC) to cover these upfront costs.
HELOCs provide a set amount of funds you can access on an as-needed basis. Then, unlike a lump-sum term loan, you only pay interest on the borrowed amount from the date you withdraw it. This makes for easy access to cash when you don't need the full amount at once, or if you aren't sure exactly how much you'll need.
But is a HELOC right for you? Learn more about what it is, how it works and how to qualify. Your home improvement dreams may not have to wait much longer!
What is a HELOC?
A HELOC is a line of credit secured by the equity you have in your home. For example, if your home is worth $450,000 and you've paid off $200,000 you would have $250,000 equity in your home. Upon approval, lenders will typically extend a credit line up to a certain percentage of your available equity.
How do HELOCs work?
In short, HELOCs offer you a credit line you can withdraw from as needed for a certain period of time. Here's a look at the ins and outs of this loan product:
- Qualification requirements: To qualify for a HELOC, you must first be a homeowner with the minimum amount of equity required by a lender. Your gross monthly income, credit, and other aspects of your financial situation will also be considered as part of the qualification process.
- Credit line amounts: Lenders offer credit lines with general minimum and maximum limits. The amount you qualify for will depend on your specific financial situation. At California Bank & Trust (CB&T), HELOCs range from $10,000 up to $2,500,000.
- Minimum draw amounts: HELOCs often have minimum limits on the amount you can withdraw from the credit line at a time. For example, with CB&T, you must withdraw at least $300 each time you access your line.
- Repayments: Like any loan, you will need to repay the amount you borrow. HELOCs often have a draw period in which you can make withdrawals from your credit line. During that time, monthly payments on the interest of the amount borrowed are often due. When the draw period ends, a repayment period begins where payments include both principal and interest.
- Financing costs: The amount you pay to borrow money using a HELOC is based on the amount of the loan, applicable interest rate and fees a lender charges. HELOC rates may be fixed, variable, or a combination of both. Fees vary by lender and by the specifics of a borrower's situation. Understand both before signing on the dotted line, as even a small difference in interest rate could have a significant impact on the required payment amount.
- Fund uses: Homeowners often use HELOCs to fund home improvement projects, but the funds can be used for anything you want, from college tuition to medical bills.
HELOCs offer a flexible way for homeowners to liquidate the equity they've built in their homes before selling. To get the best deal, you should consider not only competitive interest rates but also low to no fees.
How to get a HELOC for your home improvements
If you're interested in getting a HELOC, the first step is to find out if you qualify. You can do so by checking the eligibility requirements and applying if it's a good fit. Learn about current HELOC offers available at California Bank & Trust.