How to get a home equity line of credit (HELOC)

You've spent years building equity in your home, so it makes sense to explore what that equity could do for you. A home equity line of credit is one borrowing option available to homeowners—often at a lower rate than credit cards or many personal loans. 

What it means to get a HELOC (and how it works)

A home equity line of credit (HELOC) is a revolving line of credit secured by your home. HELOCs have a draw period and repayment period.

The draw period, which generally ranges from several years up to 10 years, depending on the lender, is when you borrow, repay, and borrow again, up to your credit limit, as often as you like. After the draw period ends, you enter the repayment period and you can’t borrow more. Repayment periods typically range from 10 to 20 years depending on your lender and the term you choose.

During the draw period, some HELOCs allow interest-only payments. Others may require payments that cover both principal and interest. Ask your lender which applies to your loan. If you make interest-only payments, the balance you owe won’t go down, even if you pay for years. 

Most HELOCs carry variable interest rates, which means the rate and payment amounts could change. Some lenders, including Achieve, offer fixed-rate HELOCs that set a fixed rate on amounts you draw, which may offer more payment predictability. Ask each lender which option they offer.

Before you apply: check whether a home equity line of credit could fit your plan

Before you start filling out applications, a quick financial self-check might help you understand where you stand.

Estimate your home equity

Your home equity is the difference between your home's current market value and what you still owe on your mortgage. Many lenders require you to retain a minimum percentage of equity after the HELOC is factored in, though requirements vary by lender.

Review your budget and DTI

Lenders consider your debt-to-income (DTI) ratio, which measures your total monthly debt payments against your gross monthly income. A lower DTI generally makes you a stronger applicant. A HELOC may also affect your DTI.

A DTI calculator may help you get an initial idea of what your ratio is.

Check your credit

Lenders’ credit score requirements vary. A stronger credit history typically means better rate options. Check your credit report before you apply and dispute any errors you find. Credit score requirements vary by lender, so check with each one directly.

How to apply for a HELOC in 7 steps

Once you've confirmed that a HELOC could be a good fit, the application process tends to follow a fairly predictable path. Here's what to expect at each stage.

1. Decide how much you need. Think through your needs first.

2. Gather common documents. You'll likely need proof of income, homeowners insurance, your mortgage statement, and a government-issued ID. 

3. Compare HELOC features across lenders. Review rate type, fees, draw rules, and repayment options. 

4. Ask lenders the right questions. See below for a list.

5. Apply and respond quickly to follow-up requests. Lenders often ask for additional documents, and a prompt response keeps your application moving.

6. Prepare for a home value review. Lenders typically require an appraisal or other valuation method to confirm your equity.

7. Close and understand what comes next. Review the terms carefully before signing, and ask how and when you access funds after closing.

Questions to ask a HELOC lender before you sign

Before you commit to a lender, you may want to ask these questions 

• Is the rate variable or fixed? If variable, how often could it change and what are potential rate changes based on?

• What fees will you pay upfront and over time, including application, appraisal, annual, or inactivity fees?

• Is there a minimum draw at closing or a minimum amount required when you access funds?

• What are your payment obligations during the draw period vs. the repayment period?

• Are there penalties for early payoff, closing the line early, or leaving it unused?

Common reasons a HELOC application gets delayed

A few things tend to slow down the process. Prepare your documents early to keep your application moving. Common delays include:

• Income documentation that is incomplete or unclear

• Homeowners insurance or property tax paperwork that's missing

• Appraisal or valuation delays due to scheduling

• Title issues that need to be resolved before closing

Alternatives if a HELOC is not the right fit

A HELOC is not the only way to access home equity or cover a large expense. There are other options to consider, depending on your financial situation and goals.

• A home equity loan provides a one-time loan at a fixed rate, which may suit you better if you need a set amount and prefer consistent payments.

• A typical cash-out refinance replaces your existing mortgage with a new one and gives you cash from your equity. It resets your mortgage rate and terms.

• An unsecured personal loan does not use your home as collateral. The rate may be higher than a secured option.