May 14, 2021
A home equity line of credit (HELOC) lends against the equity you have in your property. Are you wondering — How does a HELOC work? Well, it's different from a home equity loan, where you get all the funds at once. It's a "line of credit" that you use when you need it. Today we'll discuss the PenFed HELOC. The guidelines for most lenders will be similar but might vary a bit. The loan amount you might be able to qualify for depends on a few things. Read on to learn what they are.
How big of a HELOC can I get?
Your HELOC loan amount will depend on how much equity you have in your home. You'll need at least 20%. Every lender has their minimum and maximum loan amount. For PenFed, the minimum loan amount is $25,000. The max HELOC amount is $500,000.
Your income, credit score, occupancy, and property type will also make a difference in loan size — just like with any type of loan.
Can you increase your HELOC amount?
When you receive your HELOC, you will have a set credit limit. If you need additional funds over your limit, you'll have to apply for another HELOC. That's why you may want to consider taking out the maximum amount you might need over the next several years. You only draw the money you need. And you're only charged interest on the funds you take out.
You can have multiple HELOCs or home equity loans. That is, as long as you can qualify and have enough equity.
How much HELOC should I get?
If you're considering doing several remodeling projects over the next ten years, you may want to apply for enough funds to cover all of those projects even though they may be several years out. Here are examples of average remodeling costs for the United States:
Midrange Renovation Costs
- Full kitchen remodel: $68,490
- Bathroom remodel: $21,377
- Master suite addition: $136,739
- Inground swimming pool: $30,000
- Total midrange renovation costs: $256,606
Upscale Renovation Costs
- Full kitchen remodel: $135,547
- Bathroom remodel: $67,106
- Master suite addition: $282,062
- Inground swimming pool: $50,000
- Total midrange renovation costs: $534,715
From the examples above, you can see why there are advantages to planning when you're getting ready for major renovations. The other option is to get a home equity loan. In that case, you receive your funds all at once and have a fixed payment. Learn more about the differences between home equity and HELOC before making your decision.
Average HELOC Amount
In 2019, the average HELOC amount was almost $50,000 at $49,930. Keep in mind, homeowners can have their first mortgage and more than one home equity line of credit or fixed home equity loan. Depending on your circumstances, rather than taking out multiple HELOCs, a refinance may be a better option.
Is a HELOC a second mortgage?
Here's what the Consumer Finance Protection Bureau has to say:
What is a second mortgage loan or "junior lien"?
A second mortgage or junior lien is a loan you take out using your house as collateral while you still have another loan secured by your home.
Home equity loans and home equity lines of credit (HELOCs) are typical examples of second mortgages. Some second mortgages are "open-end" (meaning you can continue to take cash out up to the maximum credit amount and, as you pay down the balance, can draw again up to the same limit). Other second mortgage loans are "closed-end" (in which you receive the entire loan amount upfront and cannot redraw after that).
The term "second" means that if you can no longer pay your mortgages and your home is sold to pay off the debts, this loan is paid off second. If there is not enough equity to pay off both loans, ultimately, your second mortgage loan lender may not get the full amount it is owed. As a result, second mortgage loans often carry higher interest rates than first mortgage loans.
How to Get a HELOC
To apply for a HELOC, contact your lender and complete an application. It's relatively quick. By going through the process, you'll get an idea of how much you may need to borrow. One of the advantages of this type of home equity line of credit is that it is easier and faster than a traditional mortgage.
To learn more about PenFed loans or what loan is right for you:
- Call 866-386-7254
- Visit the Mortgage Center