Does a HELOC put a lien on your house?

A home equity line of credit (HELOC) can give you a way to turn your home's equity into a line of credit you can use when needed. HELOCs have several key benefits that make them a solid borrowing choice in today's market. They operate like a revolving line of credit, giving homeowners flexibility they wouldn't have with a lump sum of equity borrowed. And the average interest rate is 8.02%, making them one of the most affordable ways to borrow money right now. 

Like any financial decision, though, opening a HELOC takes some planning. What will you use it for? How much equity do you have? How long do you want your draw period to be? These questions are instrumental in finding the right HELOC for what you need. 

Additionally, it helps to understand how a HELOC works so you know what to expect once you open it. A HELOC uses a variable rate, which means your HELOC interest rate — and HELOC payment — can change monthly. Additionally, any withdrawals from your HELOC during your draw period trigger interest-only monthly payments until you pay off what you borrowed or your repayment period kicks in. 

Another thing to consider is that a HELOC is considered a secured funding source. This means your home will serve as collateral. But does that result in a lien being putting on your house? That's what we'll explore below.

See what HELOC rate you could secure here today. 

Does a HELOC put a lien on your house?

Yes, a HELOC puts a lien on your home. A lien is a legal term referring to a creditor having a right to ownership of what you're borrowing against, says Ralph DiBugnara, president of mortgage broker Home Qualified.

"A lien, basically, is a legally binding placeholder on the title of your home," DiBugnara says. "It's a record [that says] if you ever sell the house or refinance the house that the lienholder that you hold a debt to has to be paid off."

A lien typically gives your HELOC lender the right to start the foreclosure process if you're at least 120 days late on your payment, DiBugnara says. However, banks usually won't go straight to foreclosure because it's a tedious process, so they typically take you through three steps before foreclosure begins, he says: 

• A payment agreement in which you agree to pay your back payments through a lump-sum payment at the end of your repayment period. 
• A HELOC modification in which your lender adjusts the terms of your HELOC to make monthly payments more affordable.
• A forbearance agreement in which you promise to make your late payments or foreclosure will start. 

If your home goes into foreclosure, your credit score will likely be impacted and the foreclosure will stay on your credit report for seven years, according to the Consumer Financial Protection Bureau (CFPB). A lower credit score may result in higher borrowing costs for you in the future, which means the foreclosure process can be a financial burden long after it's over. 

But if you make your payments on time, you generally don't have to worry about any lender liens on your home. 

Explore your current HELOC options here. 

How to use a HELOC responsibly

To avoid your lien being enforced and, potentially, losing your home to the lender, it helps to know some simple guidelines for HELOC borrowing. 

First, make sure you have a purpose for opening a HELOC. Using it for the right reasons, like home repairs and renovations that can result in a tax deduction, is key. After you identify the purpose for your line of credit, decide on a HELOC amount that fits the purpose. Borrowing significantly more money than you need could lead to overspending and increase the chances you fall behind on your payments. And, avoid taking out a HELOC to cover everyday costs like groceries and gas, DiBugnara says. 

"If you're taking out a HELOC to pay your daily expenses, you may put yourself in a position to have a problem," he says. 

Using a HELOC to cover everyday costs is a sign that you might be in financial trouble, which means you could be in jeopardy of missing HELOC payments and, possibly, going into foreclosure. If you find yourself in that position, an unsecured lending option like a personal loan or credit card may be a better option since you don't have to offer collateral to get funding.

The bottom line

HELOC lenders typically place a lien on your home's title if you open a line of credit with them. The lien gives your lender the right to foreclose on your home if you default on your HELOC payments. However, most lenders want to avoid the foreclosure process and will offer you alternative options before it gets to that point. Borrowing a HELOC responsibly, both in the decisions you make before you open one and how you handle your spending after it's open, can help you avoid ever having your HELOC lender's lien become an issue.