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MORTGAGE KNOWLEDGE CENTER

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HELOC LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. QUIZ: Is a HELOC a Good Idea for Me?

MORTGAGE

QUIZ: Is a HELOC a Good Idea for Me?

What You'll Learn: HELOC advantages, equity requirements, uses, restrictions, limits, and terms

EXPECTED READ TIME:6 minutes

July 21, 2023

QUIZ: Is a HELOC a Good Idea for Me?

Your burning question: Should I get a home equity line of credit (HELOC)? You’re in the right place. We’ll help you decide in this five-question quiz, covering everything from HELOC rules to loan amounts. Ready? Let’s get started.

1. How much equity do you have?

A. 20% or more

B. 15 – 20%

C. Less than 15%

A HELOC is a revolving credit line based on the equity you have in your home. (To back up further, your equity is how much of your home you actually own: current value minus what is still owed.)  Every lender has their own home equity line of credit requirements. Many require borrowers to have at least 20 percent equity, although some will go as low as 15 percent.

Your equity is typically viewed through a lens called the loan-to-value (LTV) ratio – basically your current mortgage principal divided by the appraised property value and converted to a percentage. An LTV of 80 percent or higher is favorable for a HELOC.

If you answered:

  • A. You’re in good shape to be approved for a HELOC. Depending on your credit history and other factors, you may even qualify for the best introductory rate available.
  • B. You’re on the right track. You’ll likely meet some lender requirements, but your line of credit may be smaller and interest rate higher than with a lower LTV.
  • C. Don’t be discouraged. You may not be eligible just yet, but every monthly mortgage payment will help you gain traction. In the meantime, learn more about how much equity you need for a HELOC.

2. How much money do you want to access?

A. Between $25,000 and $500,000

B. Between $10,000 and $25,000

C. Less than $10,000 or more than $500,000

Your HELOC loan amount will depend on many factors. Your current equity, income, credit score, property type, current debts, and whether or not you live in the home make a difference in eligibility and loan size.

If you meet the qualifications, many lenders allow you to access up to 80 percent of the equity in your home. But the final line of credit also takes into account your outstanding mortgage balance. 

If you answered:

  • A. Great, you’re within a typical HELOC range for many lenders. Just remember how much HELOC you can get will be based on your individual factors. 
  • B. It may take some extra shopping around, but lower limit HELOCs are available with some lenders.
  • C. Don’t rule out a HELOC yet, but your lender may be able to offer alternative solutions that can better serve your needs.

3. How will you use the funds?

A. To make value-adding upgrades to my property

B. For things unrelated to my home, such as managing debt, investing, or paying for unexpected expenses

C. I haven’t thought much about it yet

One of the benefits of a HELOC is that there are no restrictions on what you can or can’t use the funds for. Home improvements are a popular and often worthwhile use, but paying off debt, funding college, investing in real estate, and creating an emergency fund are just some of the other options.

Remember, there are pros and cons of any loan type. A disadvantage of a home equity line of credit is that your home is used as collateral (although that helps secure the low introductory interest rate). Because your house is on the line, it’s recommended to use your line of credit in a way that will put you ahead financially.

If you answered: 

  • A. Great news: This is often viewed as the best use of home equity, and your interest payments may even be tax deductible. Consult a tax adviser for further information regarding the deductibility of interest and charges.
  • B. Good work identifying your need(s). Be sure to weigh HELOC pros and cons to ensure your equity is put to good use.
  • C. Don’t worry, we’ve got you covered. Explore 10 ways to use the equity in your home to your advantage.

4. How are your debt payments going?

A. About 40% or less of my monthly income goes to loan and credit card payments.

B. About 40% – 50% of my monthly income goes toward paying off debt.

C. Debt payments make up more than half of my monthly budget.

Besides helping with your credit score, lowering debt affects another important element in a lender’s mind: your debt-to-income ratio. Also called DTI, this ratio helps lenders better understand your ability to afford HELOC payments based on how much of your income is already used for paying off debt. The max DTI for a HELOC varies by lender, but is typically between 43 percent and 50 percent.

To calculate DTI, add up your monthly expenses from loans and credit cards, including your mortgage payment. Then divide by your pre-tax income.

If you answered:

  • A. You may be in a good DTI range to qualify for a HELOC.
  • B. With a mid to high DTI ratio, you may be eligible with certain lenders, or you could get your current loan balances down before you apply for a HELOC. A lower DTI may help increase your line of credit or lower your introductory rate.
  • C. Lenders look at how much you owe as an indicator of a borrower’s readiness to take on a second mortgage. A higher income or less debt will help you qualify.

5. How long do you plan to own your current home?

A. 30 or more years

B. 11 – 29 years

C. 10 years or less

We know: It’s hard to predict exactly what your future holds. But another factor in your decision is whether you plan to sell the property with a HELOC in the not-too-distant future. Selling requires paying back what you owe, cutting into your home sale profits. The longer you have to build equity and pay back the line of credit, the better you’ll be when it comes time to sell.

If you answered:

  • A. Perfect. Typical HELOC terms have a 10-year draw period and 20-year repayment period, so your loan should be out of your hair before it comes time to sell.
  • B. A HELOC can still make sense if you plan to sell during the repayment period. Just be prepared to pay the remainder back at the time of sale.
  • C. Bear in mind you may still be in your draw period with interest-only payments. Consider paying more than required from the very beginning to put you in the best position. 

Results

So: Is getting a HELOC a good idea? If you answered mostly:

A – You’ve probably put a lot of thought into it already and are in a favorable position to obtain a line of credit for your desired needs. 

B – You may be ready, or you may need a little more time to decide if a HELOC is right for you. If you need help, contact a loan officer to talk through the details of your situation. 

C – You may still be exploring your options, and that’s a great place to start. Visit our Mortgage Knowledge Center for more resources.

 

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

How Much Equity Do I Need for a HELOC? | PenFed Credit Union

Find out HELOC requirements, how long it takes to get a HELOC, and how much equity you need for a HELOC here.

Couple calculating a budget together.

What Are the Pros and Cons of a HELOC? | PenFed Credit Union

A HELOC (home equity line of credit) has some advantages and disadvantages other equity loans don't. Find out what they are so you can decide if a HELOC is right for you.

Couple looking over documents

HELOCs & Home Equity Loans – Top FAQs | PenFed Credit Union

Using the equity in your home and getting a HELOC, or home equity loan is a big decision. Discover the pros and cons and get your top questions answered.

files and binder on a desk

What Is Home Equity? | PenFed Credit Union

Learn the definition of home equity, how to calculate your homes equity, and use it for a home equity loan or line of credit or HELOC.

Houses in neighborhood
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HELOC LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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This credit union is federally insured by the National Credit Union Administration. Rates are current as of October 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


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The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


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