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The best home equity line of credit (HELOC) lenders offer a wide range of loan amounts, competitive interest rates, and flexible repayment. While you can’t use Credible to find a HELOC, we’ve identified six companies that do offer these loans, and reviewed the pros and cons of each one.
A closer look at HELOCs
- What is a HELOC
- Best HELOC lenders
- Benefits and drawbacks of HELOCs
- What are my other options?
- Home equity line of credit FAQs
What is a HELOC?
A home equity line of credit allows you to borrow money “on demand,” like a credit card. You can take out money as needed up to a prespecified limit, pay down the balance, and use the line of credit again. The amount you can borrow is based on the home equity you’ve accrued over time. Your home is the collateral that secures the loan, so a HELOC usually has a lower interest rate than unsecured forms of lending, such as credit cards and some personal loans. Of course, this also makes it riskier for borrowers, since you could lose your home if you don’t repay the HELOC.
Every HELOC lender has its own eligibility requirements. But typically, you’ll need a credit score of at least 680, a maximum debt-to-income ratio of 43%, and at least 20% equity in your home.
You can use funds from your line of credit for any purpose, whether it’s related to your home or not. You might use the money to get a new air conditioning system, remodel your kitchen, or pay off a high-interest credit card.
Best home equity line of credit (HELOC) lenders
Every HELOC lender has its strengths and weaknesses. You may have to compromise in some areas, but you should be able to find a loan that’s right for you by shopping around.
Pentagon Federal Credit Union
Best for: Borrowers looking for a bank alternative
If you’re looking for a bank alternative, Pentagon Federal Credit Union (PenFed) is a nationwide credit union that anyone can join by opening a savings account with $5. PenFed offers a full range of financial products, from certificates of deposit to HELOCs.
- No origination fees, and PenFed pays most closing costs
- Get funds in as little as 15 days
- Lock in a fixed rate on part of what you borrow
- Must join credit union (membership is open to everyone)
- Must contact PenFed to apply
- Annual fee of $99
Best for: Borrowers seeking a national bank
U.S. Bank is one of the country’s largest banks, offering loans in all 50 states. You can also do your checking, savings, and other financial activities with U.S. Bank, which may get you a discount of up to 0.5% on a HELOC.
- No application fees or closing costs
- Lock in a fixed rate on up to three balances
- Apply online, by phone, or in person
- $90 annual fee after the first year unless you have a U.S. Bank Platinum checking account (which has a $24.95 monthly fee unless you meet certain requirements)
- Must qualify for a $100,000 line with less than 70% combined loan-to-value (CLTV) ratio to be eligible for the best rates
- Maximum HELOC is $750,000 in all states except California, where the limit rises to $1 million
Bank of America
Best for: Low introductory rate
Bank of America is a traditional bank with a long history. It’s trying to stay competitive in a world where borrowers can often get everything they need online. Like all large institutions, its size can be both an asset and a liability.
- Receive a lower variable introductory rate for six months
- Convert part or all of your variable-rate HELOC balance to a fixed-rate loan with no fee ($5,000 minimum applies)
- No closing costs on lines of credit up to $1 million, no application fees, and no annual fee
- Fee of $450 may apply if you close your account within 36 months of opening it
- Doesn’t disclose maximum CLTV ratio
- In some locations, maximum line amount is $500,000 instead of $1 million
Best for: Getting funds quickly
Guaranteed Rate offers a fully online loan process but can also help customers in more than 400 branches around the country. The lender originates mortgages, HELOCs, and personal loans in most states and Washington, D.C.
- Fixed rate for the life of the loan
- No closing costs
- May receive funds within 5 to 10 days
- Maximum loan amount is $400,000
- Borrowers pay an origination fee in exchange for a lower APR
- Not available in Delaware, Kentucky, Maryland, New York, South Carolina, Texas, or West Virginia
State Employees’ Credit Union
Best for: Borrowers residing in North Carolina
This member-owned, not-for-profit cooperative is an example of how smaller credit unions can fill unique needs, such as allowing teachers to skip loan payments during the summer when they aren’t earning paychecks. Along with HELOCs, it offers a full range of financial services, from insurance to financial planning. However, you must meet very specific eligibility requirements to qualify for a HELOC from State Employees’ Credit Union.
- No application, credit report, or origination fees
- 15-year draw period instead of the standard 10
- CLTV up to 90%
- Membership is limited to certain North Carolina public employees and immediate family
- Only available for properties in North Carolina, South Carolina, Virginia, or Georgia, and members must reside in North Carolina or bordering states
- Third-party fees to open the HELOC typically cost $300 to $1,600
Best for: Borrowers seeking a midsize bank
Flagstar Bank is one of the country’s largest mortgage lenders. It offers home and personal loans nationwide as well as banking and investment services, and has 395 branches across nine states.
- No closing costs if you keep your HELOC open for at least 36 months
- Lines range from $10,000 to $1 million
- CLTV up to 89.99%
- $75 annual fee after the first year
- Can’t apply online
- Not available in Texas
To identify the best companies for home equity lines of credit, Credible looked at data points in the following categories:
- Loan minimums and maximums
- Loan terms
- Maximum CLTV
Credible started with a list of 26 major lenders and ruled out 18 because they didn’t offer a home equity line of credit product. Credible then gathered as much information as possible from the remaining lenders’ websites to evaluate their HELOCs.
If you can’t find what you need from these six lenders’ offerings, or just want to shop around more, Credible recommends checking out local and regional credit unions and banks for more HELOC options. Or, shop with Credible to find a great rate on a c, or personal loan.
Pros and cons of HELOCs
While HELOCs have several benefits, they also come with disadvantages.
- Interest might be tax-deductible: You can deduct interest paid on a home equity line of credit if you use the money for home improvements. The IRS allows you to deduct the interest on home loans up to $1 million if you took out the mortgage before Dec. 16, 2017. For loans closed after that date, the threshold falls to $750,000. You’ll also need to itemize deductions.
- Flexible borrowing option: You can use your HELOC funds as you need them instead of receiving the money as a lump sum, making HELOCs ideal when you don’t know exactly how much you need to borrow. You can control the size of your monthly payments, and you only pay interest on what you take out.
- Long repayment term: A HELOC is repaid in two phases, which offers flexibility. You borrow money as needed during a “draw period,” which usually lasts 10 years. After the draw period ends, you pay down any remaining balance over time, usually a period of 20 years.
- Potential to lose your home: Your home is the collateral that secures the HELOC — meaning if you fall behind on payments, you risk losing your home to foreclosure.
- Equity in your home is reduced: When you borrow against the value of your home, you deplete the equity you’ve built up. If housing prices dip, you may wind up owing more than your home is worth. This could leave you in a difficult position if you need to sell the home.
- Your credit limit could change: If home values fall drastically in your area, your lender may adjust the amount of equity you have and potentially lower your HELOC limit.
If a HELOC isn’t right for you, consider the following options:
Home equity loan
Like a HELOC, a home equity loan is a second mortgage that uses your home equity as collateral. The amount you can borrow is based on your available equity, and interest rates are typically lower than unsecured forms of credit, such as credit cards and personal loans.
Instead of getting access to a credit line, you receive the funds in one lump sum upfront. With a fixed interest rate, your installment payments never change. This type of loan may be a good option if you know exactly how much you need to borrow.
With a cash-out refinance, you take out a new, larger mortgage to pay off your existing home loan and pocket the difference in cash. You’ll pay off the higher-balance loan over time, with your home acting as the collateral that secures the loan. A cash-out refinance may be a good option if you qualify for a good interest rate and you’ve built up a lot of home equity. To determine if a cash-out refinance is right for you, use Credible’s cash-out refinance calculator.
A personal loan is typically an unsecured loan that you can use for almost any purpose. These loans usually come with a fixed interest rate and monthly payment, and you receive the funds in one lump sum.
Because most personal loans are unsecured, you don’t have to put your home up as collateral. As an added bonus, the application process on a personal loan is usually easier compared to a HELOC or cash-out refinance because you don’t have to prove your home’s value. However, personal loans tend to have higher interest rates than home equity products.
Frequently asked questions about home equity lines of credit
Here are the answers to some of the most commonly asked questions about HELOCs.
What are the requirements to get a HELOC?
Every lender has its own requirements, but these are the qualifications you’ll usually need to meet:
- Credit score: At least 680
- Debt-to-income ratio: No higher than 43%
- Home equity: At least 20%
Lenders might adjust certain requirements up or down depending on other aspects of your finances, allowing you to compensate for a weakness in one area with a strength in another area.
Can you get a fixed-rate HELOC?
Interest rates on HELOCs are usually variable. But some lenders offer HELOCs where you lock in some or all of your balance at a fixed interest rate. This protects you against rate fluctuations, which can increase your payments and the total interest you pay.
What’s the difference between a home equity loan and a HELOC?
With a home equity loan, you receive the money upfront in one lump sum. You pay down the balance in fixed installment payments, and interest charges apply to the entire loan balance.
A HELOC, on the other hand, provides access to a revolving line of credit. You can draw cash as needed, up to a predetermined limit, and then pay down the balance and use the line of credit again. The interest rate is usually variable, but you only pay interest on what you borrow.
|Home equity loan||Home equity line of credit (HELOC)|
|Disbursement||Cash up front in one lump sum||Draw cash as needed, up to limit|
|Repayment||Fixed monthly payments||Open-ended. Interest-only payments often allowed during draw period|
|Interest rate||Typically fixed||Usually variable|
|Interest charges||Interest charges apply to entire loan balance||Only pay interest on amount you draw|
|Points, closing costs, and fees||Lender may charge points, closing costs and fees||No points, closing costs may be lower|
While Credible doesn’t offer home equity lines of credit, we can help you find a great rate on a cash-out refinance. With a cash-out refinance, you can access your equity and potentially lower your interest rate, all with the same loan.
Amy Fontinelle has contributed to the reporting of this article.