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Understanding the Home Equity Lines of Credit

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By : Roby Hicks    99 or more times read
A second mortgage is often the choice of many in dealing with their financial adversity. Fortunately, there are various ways to make it possible. One of the most popular ways to make such financing is through home equity lines of credit or commonly known as HELOC. But what is this? How does this works and what are the benefits that HELOC offers?

Home equity line of credit is unlike regular mortgage. Only chosen borrowers qualify. Once he is qualified, the lender will agree to let him borrow an amount, which is equal to the equity of his property. However, he does not get a lump sum amount. He will be given a line of credit instead that will last for a certain period. This works like a credit card. This is beneficial because he can use the money whenever he needs it. There are other benefits too. However, one has to be careful when using this to avoid problems when the term ends.

Qualifying for a HELOC

In order to qualify, you will need to check the requirements from the lender. The paper works are not as complex as regular loans. But, you will need to provide complete information so that your application will be evaluated thoroughly.

Among the things that the lender will review is your debt-to income ratio. If it is high, you will less likely qualify. You will also need to present your credit report. The lender would prefer that you have a high credit score. You should also have a good and stable employment history as well as a decent pay. Other information may be requested such as financial statements.

Since the lender will lend you the amount equivalent to the equity of your home, your property needs to be appraised. It is also important that you have paid at least 20% of the mortgage or that the value of the property has increased by at least 20%.

HELOC benefits and drawbacks

Although it is difficult to qualify for the home equity line of credit, many still want to try it. This is because of its benefits. First, the funds work like a credit card. This means that he only pays for the interest of the amount that he actually used. In most cases, lenders do not require payment for the principal until the period of the credit expires. This means that you only pay for the interest. Additionally, the interest paid is tax deductible. Many also prefer this because its interest rate is lower compared to the other second mortgages.

This type of financing has disadvantages as well. This is especially true to irresponsible borrowers. This is because some would tend to use up the funds even if they do not need to. There is also a drawback if a borrower fails to pay the principal slowly. He will be left to make a balloon payment by the end of the mortgage term.

The HELOC offers a lot of benefits. However, you have to be careful when using it because it can bring more financial troubles if you misuse it.
Visit the University Heights San Diego Realty. Check out the Affordable Housing in Cardiff By The Sea and the Coronado Homes as well.

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