Home equity application checklist

As you pay down your mortgage, you build up equity in your home. One way to tap into that equity and help reach your financial goals is by opening a home equity line of credit, or a HELOC for short.

Think of a HELOC as a credit card designed for life’s big expenses — you could borrow what you need to cover the cost of a home renovation, to pay off high-interest debt or to take a dream vacation. Then you'll pay it off in monthly installments. As you pay down the initial borrowed amount, you may be able to borrow more.

Not everyone with a mortgage or a house qualifies for a HELOC. Here's what you need to know about how to qualify for a HELOC and prepare your application.

Main requirements to qualify for a HELOC

You need three things to qualify for a HELOC: equity in your home, a relatively low debt-to-income ratio and a decent credit score. Lenders look at:

• Loan-to-value (LTV) ratio: Your LTV ratio is how much you owe on your mortgage compared to your home's value. To qualify for a HELOC, the amount you owe should not be more than 80% of the home's value.
• Debt-to-income (DTI) ratio: You can find out your DTI ratio by dividing your monthly debt payments by your monthly income. The maximum DTI is 65%, but lower is generally better in terms of interest rate and HELOC terms. Expect to provide documentation that verifies your income.
• Good credit: A credit score of 680 is acceptable as long as you meet the other two requirements. The higher your score, usually the better the terms of your HELOC. If you've frozen your credit for any reason, make sure to unfreeze it before you apply.

Documents and information needed for a HELOC

As you begin the application process, you'll need to provide the lender with the following information:

• Your Social Security number
• Birthdate
• List of current debts and account balances
• Your current residential address
• Current employment information and employment history
• Pay stubs for the past month (showing year-to-date income)
• Other proof of income, for example a tax return or Form W-2
• Valid homeowner's insurance
• Most recent mortgage statement

Other factors that weigh on HELOC qualification

Not all HELOCs are the same. They have different interest rates, loan terms and requirements. Part of knowing how to qualify for a HELOC is knowing what factors impact your application. Consider the following:

• The loan product you want to apply for: Lending limits, interest rates and repayment terms vary from one loan to the next. Make sure you have decided how much you are asking to borrow and how you'd like to pay it back.
• The purpose of the HELOC: Your lender will need to know if you are using the HELOC to purchase a home, fund a home improvement project, refinance an existing loan or for something else. Be prepared to give an overview of your spending plan.
• Co-applicant information: If someone is going to be assuming the same responsibility for the HELOC as you, you need information about his or her employment and residential status.
• Promotional rates or information from your lender: If you want any special terms applied to your loan, make sure you have the details ready at the time you fill out your HELOC application.
• Your employment history: You don't need to have a traditional W-2 job to qualify for a HELOC. What you do need is proof of income and usually several years of steady income. For that reason, some lenders' HELOC requirements include providing two years of tax returns.
• Your property value: The appraised value of your home determines the LTV ratio. If you've yet to make a lot of headway on your mortgage, now may not be the right time to apply for a HELOC. However, if your home's value has increased considerably since you purchased it, you may have more equity than you think, even if you haven't paid off much of the mortgage yet.

Questions about your current mortgage

When you apply for a HELOC, your lender could want the details about your current mortgage and any existing home equity loans. Be prepared to possibly provide the following information:

• How much you currently owe
• Your monthly payment amount
• Whether you have additional mortgages on the home

HELOC FAQs

Still curious about how to qualify for a HELOC? Check out these frequently asked questions.

• Is a HELOC the same as a home equity loan? Both a HELOC and a home equity loan borrow against the equity in your home. However, a HELOC is more like a credit card while a home equity loan is an installment loan. With a home equity loan, you borrow a lump sum, then repay it in equal monthly payments. A HELOC allows you to make interest-only payments during what’s known as the “draw” period, the draw period is normally a 10-year term.
• Do HELOCs have closing costs? Some HELOCs have closing costs but not all. Some lenders will charge between 2 and 5% of the credit line; however a HELOC with Citizens does not have closing costs.^†
• How long does a HELOC application take? Once you have all the documents ready, you can apply for a HELOC in a matter of minutes with Citizens FastLine®. With an approved fast-tracked HELOC application, you can anticipate to close in a week and should have access to your funds within two weeks. Traditional HELOC applications usually take between two and six weeks.
• Can I use a HELOC to buy another house? You may be able to use a HELOC to buy another home, or to make a down payment on another home, provided you have an adequate amount of equity in your current property.

Apply for a HELOC today

Is a HELOC the right option for you? The more you know, the more prepared you'll be to make financial choices that will help you reach your goals. Learn more about how you can tap into your home equity with a HELOC from Citizens.