Couple Making Home Improvements with HELOC

Mar 18, 2016 / Home Equity

Financial Firsts: Applying for a Home Equity Line of Credit

Your home sweet home is much more than a place to hang your hat and kick up your feet with the family. The equity you’ve built in your home can help you get ahead financially by providing you with a boost when you need one.

In addition to home improvements, you can use a home equity loan to consolidate your debts, pay student tuition, help with wedding costs, and more. Plus, home equity loans are a smart alternative to other loans because they typically offer lower interest rates and may be tax deductible.

One of the most common types of home equity loans is a Home Equity Line of Credit, often referred to as a HELOC. Here’s everything you need to know about a HELOC, including how it works, how it can benefit you, and how you can qualify for one.

What Is a HELOC?

A HELOC is a revolving line of credit that enables you to borrow money from your credit union or bank using your home as collateral. Unlike some other home equity loans that only let you borrow a fixed amount of money for a fixed term, a HELOC offers more flexible spending options and you may be able to “renew” it for future needs.

HELOC Rates, Repayment & Annual Fees

Traditionally, HELOCs have had variable rates; however, some credit unions and banks have started offering more flexibility so homeowners can “customize” their interest rates and monthly payments. Utah First, for example, is one of the few credit unions to let you opt for fixed or variable rates on all or portions of your home equity loan or HELOC.

HELOCs will vary with each lender, so be sure to ask if your lender will require you to make more than interest-only payments and when the balance must be paid in full. It’s also wise to ask if you’ll be required to borrow a minimum amount when the line of credit is established, as these kinds of factors should be considered when making a borrowing decision.

Some lenders will charge annual fees, as well as fees each time you borrow money on your HELOC. These fees will add to the overall cost of your loan and could have you spending more than you budgeted, so be sure to ask your credit union or bank about fees before you finalize your HELOC – or opt for a lender like Utah First, who doesn’t charge annual fees on home equity lines of credit.

The Benefits of a HELOC

In addition to offering lower interest rates than a personal loan, a HELOC has several other benefits:

  • Depending on your lender, you can borrow up to 125% of your home’s appraised value if you intend to make home improvements.
  • You can take advantage of interest-only payment options if money is tight.
  • The interest you pay on your HELOC may be tax-deductible.
  • Some lenders offer HELOCs without origination costs or initial fees.


The Risks of a HELOC

Like any loan, you could face consequences if you don’t pay at least the minimum amount due on time. Remember, taking out a HELOC means you’re using your house as collateral, so your home could be at risk if you fail to make your payments.

To minimize your risk, don’t use more than you need. This not only lessens your risk of getting in over your head financially, but it may also boost your credit score. Lenders like to see that you’re not using a large portion of your available credit.

Once you’ve been approved for your loan, schedule monthly auto-payments or set a calendar reminder to alert you when your payment is due. This will also help you avoid late charges.

Qualifying for a HELOC

When you apply for a home equity loan or HELOC, your credit union or bank will look at your:

  • Household income
  • Credit history and FICO score
  • Current debts
  • Current home loan balance and payment
  • Home’s value
  • Relationship with their financial institution


Collecting all the required documents before you start your HELOC application will help you expedite the process and save you from last-minute headaches. Your lender will likely ask for:

  • Home property information (address, purchase price, and purchase date)
  • Rental agreements if you have tenants on the premises
  • W-2s (or other similar employment verification) for the past two years
  • Tax returns for the past two years if you’re self-employed
  • Bank and investment statements for the past three months
  • Proof of homeowner’s insurance


Depending on your individual circumstances, you may also be asked to provide proof of alimony, child support, disability, bonuses, or any other income.

If you have questions about the qualification process or the documents you need to provide, ask your lender. The experts at your credit union or bank can walk you through each step of the application and approval process so you can start your loan with confidence.

You made a smart move when you bought your home – now let it work for you. Utah First can help you with all your financial firsts, including a home equity loan or HELOC. Tell us what your goals are and our financial experts will help you find the best option. Get started online with just a few clicks, or call us at 800-234-0729.