What Is the Process of Getting a Home Equity Line of Credit?

A home equity line of credit allows you to borrow money at a low interest rate because your home is held as collateral for the credit line. If your home is worth at least 20 percent more than you owe on it, you can consider getting a home equity line of credit to use for any purpose.

Collect Information

Ask multiple lenders about the terms for their home equity lines of credit. Get information on interest rates in relationship to the prime rate, annual fees and one-time origination fees. Also find out whether the line must be repaid in full immediately after the draw period or if there is an extended repayment period.

Application

Your home equity line of credit application will include personal information, such as your Social Security number for a credit check and financial information, such as your annual income. The bank will calculate the value of your home and assess your financial situation and credit before offering you an interest rate and credit limit.

Considerations

Before applying for a line of credit, check your credit report and do whatever you can to improve your credit score, including paying down credit card balances. Your score will help determine whether you are approved and what interest rate you will have. CBS MoneyWatch recommends a credit score of at least 680.

References

• Bankrate: Home Equity Basics: What Lenders Look For
• CBS MoneyWatch: Home Equity: Can You Borrow Against Your Home?