A Home Equity Line Of Credit (HELOC) is a loan arrangement secured against the equity in your home. A HELOC allows you to borrow up to a pre-approved maximum amount over a period of time, and use the money for home improvements, to pay off debt, or for other purposes. The amount you can borrow is determined by the appraised value of your home, minus the amount you owe. Depending on your financial track record, lenders may let you borrow up to 85% of your home equity.
Requirements for a Home Equity Line of Credit in California
In order to qualify for a HELOC in California, you must meet the following requirements:
- Be a legal California resident
- Be at least 18 years old
- Own a home with at least 20% equity
- Have a minimum FICO score of 620
- Have a debt-to-income ratio lower than 40%
Pros and Cons of a Home Equity Line of Credit
Pros
- Flexible repayment: With HELOCs, you can adjust the repayment schedule according to your means
- Low interest rates: Rates for HELOCs are usually lower than those for other types of loans
- Tax deductible: Interest payments you make on your HELOC can be deducted from your taxes
Cons
- Risk of foreclosure: If you fail to make payments or grow too deeply in debt, you may face foreclosure
- Fluctuating interest rates: HELOC interest rates can change, resulting in higher payments
- Closing costs: HELOCs involve closing costs and other costs associated with setting up the loan.