As a financial technology company, ATTUNE provides complete solutions for lenders, credit unions, banks, and non-bank lenders. One of the programs we have a solution for is a home equity line of credit or HELOC.
What Is a Home Equity Line of Credit?
A HELOC is very similar to a credit card in that you have a maximum amount or credit limit, and you only make payments on what you have used. A HELOC uses the equity in your home as collateral and to determine the maximum amount on your line of credit. A HELOC is a good way to craft a safety net or buffer against a short-term financial difficulty. Fees tend to be low, if any, and the interest rate is generally very reasonable.
With any regular loan, including a home equity loan, you get a lump sum upfront. You then begin to pay back the full amount immediately with either an adjustable or fixed interest rate. However, with a HELOC, you only pay on what you use and do not accumulate any interest until you use your credit line and then only on the amount used. Most often, the limit is about 70%-80% of the total amount of equity you have in your home. A small caveat is that if you do not use your HELOC, some lenders charge an annual fee, so be sure you read the fine print.
How Do I Apply for a HELOC?
You would apply for a HELOC just like any other type of financing with any lender that offers a HELOC program. The first thing the lender considers is your income. While the equity in your home is used for collateral and to determine your credit line, they still want to make sure you can make the payments. Any additional income you may have from properties, businesses, or government programs can help you get approved if you choose to use that. You can also obtain someone to cosign on the loan for you if you’re credit challenged. The co-signer would then become liable for repayment if you default.
Your approval chances increase the more equity you have in your home, especially if you are only looking to utilize a smaller percentage of that equity as a HELOC. Additional collateral or assets you would be willing to put down will also boost the odds of approval. And of course, a high credit score with excellent credit history with no collections or late payments along with a low debt-to-income ratio would all but guarantee approval.
How Much Credit Can I Expect?
As stated above, the typical cap on a HELOC is around 70%-80% of the equity you have in your home, as well as a cap of 70%-80% of your home’s value for all loans. For your current mortgage, home equity loans, secondary mortgages, or other HELOCs, the total for all cannot exceed 70%-80%. For example, if you have a home valued at $300,000 and have a remaining balance of $210,000, you would have loans equal to 70% of your home’s value. For some lenders, this would preclude you from getting a HELOC. For other lenders, you could get up to 10% or $30,000 for your credit line. This money would be beneficial in an emergency, for home improvements, or to pay off other debt.
Are There Any Other Considerations?
All lenders offer different programs, so get all the particulars from any lenders you’re considering. Some lenders have a minimum withdrawal requirement or maximum withdrawal requirements, so make sure you specifically ask or find this information in your documentation. Also, make sure you understand how to access your line of credit, whether that’s checks, credit cards, both, or some other mechanism.
Lenders may also have a fixed time to withdraw funds from your account called a draw period. You can sometimes reapply after the draw period ends. If that’s not possible, you can no longer borrow against your credit line, and your outstanding balance may become due immediately. Other lenders may allow for repayment over a set time. Make sure you understand your lender’s policies. You will also want to determine what continuing costs there are, such as annual membership fees or transaction fees.
What Is the Three-Day Cancellation Rule?
Under federal law, you have the right to cancel for any reason within three days of signing your agreement as long as you have used your primary residence as your collateral. If you have used a vacation home or other secondary residence as collateral, this three-day window does not apply. Day one begins once you sign all the required documents. You’ll get a Truth in Lending disclosure that outlines any finance charges, payment schedule, annual percentage rate (APR), and financed amount. The Truth in Lending document will also address the cancellation rule. You have until midnight of the third business day following the day when the criteria were met.
ATTUNE’s HELOC Solution
ATTUNE provides a solution to make the HELOC process streamlined and more intelligent. This solution is a 10-minute, completely digital process that offers a digital closing option. With a more intelligent solution, you can see up to a 70% increase in the number of applicants you get. Part of this solution consists of a suite of tools that puts you in touch with potential new customers in your service looking to obtain a HELOC. These tools help you reach these potential customers and then provide them with the help they need to get a HELOC quickly and efficiently.
Documents are collected through various partners’ application programming interfaces (APIs) that are integrated right into the platform, allowing your customer to accomplish all the tasks without leaving your platform. The smart chat can verify much of the information, such as employment history, assets, and identity, bringing in all relevant entities to streamline the process. ATTUNE’s artificial intelligence technology autocompletes certain parts of the application, and it validates incoming information in real-time to provide instantaneous approvals.
Due to this quick and efficient process, lenders can get the funding to the customer extremely quickly, often within a week. If you’d like more information or have any questions, please reach out to the knowledgeable team at ATTUNE.
