How To Open a Home Equity Line of Credit

Lots of paperwork is involved in opening a new home equity line of credit, but once all the documents have been gathered it's a fairly simple process.

Before applying for the new line of credit, there needs to be equity available in the home to borrow against.  For example, if the home is worth $200,000, it is helpful for the total of the old and new loans to be less than about 80% of the value of the home.  In this case, that would be a total, new and old loan, of about $160,000.

The next most important issue when applying for a new home equity line of credit is probably work history.  Lenders prefer to see work and income histories for at least one and preferably all borrowers.  Stability is the key.  It's generally okay if a person has changed jobs, even fairly recently, so long as he has been doing the same sort of work for a while.  Three years is ideal.

When applying for the new home equity line of credit, any lender will need to see at least the most recent two or three pay stubs; a list of all current debt such as credit cards, other existing home loans, and so on; and possibly a recent utility bill or other evidence that the borrower actually lives at the address in question.  Each lender will have its own forms, and some may have a few special requirements of their own; each will also want to request a credit report.

Credit history is important when applying for any new line of credit.  Lenders want to see not only that a person has the financial ability to pay back the loan, but also that they have a history of paying back other loans as well.  A good credit score can have a big impact on the interest rate of the loan, so the better the credit, the lower the payments will be.

It's a good idea to shop around for the best finance rate available when applying for a new line of credit, and it is also important to be prepared with the documents listed above before talking to the lenders.  Because of how the credit scoring systems work, it is best to have all reviews of your credit history completed within 30 days of starting the process.  Otherwise the ongoing searches can hurt your credit score.


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