Home Equity: Can You Borrow Against Your Home?

Last Updated Jul 7, 2009 1:32 PM EDT

"Home-equity lines are available if you go to a credit union or a big lender like Bank of America, J.P. Morgan Chase, or Wells Fargo," says Randy Johnson, a mortgage expert with Credit.com. But even there, you may be limited to a credit line that keeps your total mortgage debt (first mortgage plus HELOC) under 70 percent of the value of your home.


Here’s a guide to today’s market for home-equity lines of credit:

Credit Availability

Tight. Lenders are much tougher about approving HELOCs than mortgages or refinancings.

What It Takes to Get Approved

  • A decent amount of equity: You’ll need well over 20 percent.
  • A good credit score: It should be at least 680 (on the FICO scale of 300 to 850)
  • Steady income: You’ll need to prove it. If you’re an employee, you’ll have to present two years’ worth of tax returns and a current month’s pay stubs. If you’re self-employed, you may need documentation of a reliable income, such as a letter from your accountant.

What You’ll Pay

The average rate on a $30,000 to $50,000 HELOC is about 5.9 percent. That markup over the prime rate (now 3.25 percentage points) is much higher than normal. In recent years, creditworthy borrowers could get a HELOC at the prime rate or at prime plus a bit less than a percentage point.

Advice

If your credit score is under 680, work to raise it by paying off your credit cards and keeping those charges below 30 percent of the cards’ limits.


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  • Jeanne Lee

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