Banks and credit unions are the most common sources for a HELOC

Most people get a HELOC from the bank or credit union where they already have a checking or savings account, or from a larger bank in their area. Banks originate the majority of HELOCs because they have the infrastructure to handle the appraisal, title search, and ongoing account management. Credit unions often offer competitive rates to members and may have more flexible underwriting than national banks.

You can also get a HELOC from online lenders and mortgage brokers, though these typically charge higher fees and rates than traditional banks. Online lenders move faster — sometimes closing in two to three weeks — but you will pay for that speed. Mortgage brokers can shop multiple lenders on your behalf, which can be useful if you have credit issues or an unusual property, but they add a layer of cost.

Start by calling your current bank or credit union and asking if they offer HELOCs. If they do not, or if their rates seem high, get quotes from two or three other lenders before deciding. The difference between a 7 percent rate and an 8 percent rate on a $50,000 line costs you real money over time.

Key Takeaways

  • Your current bank or credit union is usually the fastest and cheapest place to start, because they already know your account history and credit profile.
  • Online lenders and mortgage brokers can close faster but typically charge higher fees and interest rates than traditional banks.
  • You will need a home appraisal, proof of income, and a credit check; lenders require your home to have equity of at least 15 to 20 percent.
  • Rates and terms vary widely between lenders, so getting quotes from at least two or three sources before you commit is worth the time.
  • Some lenders have paused or closed their HELOC programs during periods of economic uncertainty, so availability changes by lender and by year.

What lenders look for when you apply

Lenders want to know three things: how much equity you have in your home, whether you can afford the payments, and whether you have a history of paying bills on time. Equity is the difference between what your home is worth and what you still owe on your mortgage. Most lenders will not offer a HELOC unless you have at least 15 to 20 percent equity, though some require 25 percent or more.

To prove you can afford payments, lenders ask for recent pay stubs, tax returns, and bank statements. They calculate your debt-to-income ratio — the total of all your monthly debt payments divided by your gross monthly income — and most will not lend if that ratio exceeds 43 to 50 percent. Your credit score matters, but it is not the only factor. A score of 620 or higher opens doors at most lenders; 700 or higher gets you better rates.

The lender will order an appraisal of your home, which usually costs $300 to $500 and is sometimes waived if you have been with the bank for years. The appraisal determines how much equity you actually have and sets the maximum line amount the lender will offer.

How to compare HELOC offers from different lenders

When you get quotes, ask each lender for the same information in writing: the interest rate, the annual percentage rate (APR), the annual fee, the draw period length, the repayment period length, and any other fees (closing costs, appraisal, title search). The APR includes the interest rate plus fees, so it is a better number to compare than the rate alone.

Pay attention to the draw period — the time you can borrow money — and the repayment period. A typical HELOC has a 10-year draw period and a 20-year repayment period. During the draw period, you pay interest only on what you borrow. After the draw period ends, you enter the repayment period and must pay back the principal plus interest, which raises your monthly payment significantly. Some lenders offer longer draw periods or shorter repayment periods; these changes affect your total cost.

Ask whether the rate is fixed or variable. A fixed rate stays the same for the life of the loan. A variable rate is usually lower at the start but can rise if the prime rate rises, which increases your payment. Most HELOCs are variable, but some lenders offer fixed-rate options or allow you to lock in a fixed rate on part of the line.

Banks that commonly offer HELOCs

Large national banks that offer HELOCs include Wells Fargo, Bank of America, Chase, and Citibank, though availability and terms vary by state and by your credit profile. Regional banks like PNC, U.S. Bank, and SunTrust also offer HELOCs. Credit unions that are part of the CO-OP network or Alliant Credit Union often have competitive rates for members.

Online lenders and mortgage companies like LendingTree, Better.com, and may provide Rate advertise HELOCs, but read the fine print carefully. Some of these companies are brokers who connect you to a lender rather than lenders themselves, which means you may end up paying broker fees on top of the lender's fees. Others have paused HELOC programs in recent years due to market conditions.

Availability changes. During periods when interest rates are rising or housing markets are uncertain, some lenders tighten their HELOC programs or stop offering them altogether. If one lender says no, try another. Being turned down by one bank does not mean you cannot get a HELOC elsewhere.

What happens after you are approved

Once you are approved, the lender orders a title search and appraisal if they have not already. You will sign loan documents, which include the promissory note (your promise to repay) and the mortgage or deed of trust (which gives the lender a legal claim on your home if you do not pay). Closing usually happens at a title company or the lender's office and takes one to two hours.

After closing, the lender records the deed of trust with your county recorder's office. This makes the lien official and public. You then receive a checkbook, debit card, or online access to draw on your line. You can draw money whenever you need it during the draw period, up to your approved limit. You only pay interest on the amount you actually borrow, not on the full line.

Keep in mind that if you do not use the line, some lenders charge an annual fee anyway. Others waive the fee if you keep a minimum balance in a checking account with them. Ask about this before you close.

What to do if you have credit problems or an unusual property

If your credit score is below 620 or you have recent late payments, most mainstream lenders will turn you down. Some credit unions and smaller regional banks have more flexible standards, particularly if you have been a member or customer for years. A mortgage broker can shop your application to multiple lenders and may find one willing to work with you, though you will pay a broker fee.

If your property is unusual — a condo in a building with few owner-occupants, a home in a rural area, a property with a second mortgage or home equity loan already on it — some lenders will not touch it. Others will, but at a higher rate. Again, a mortgage broker or a credit union familiar with your area may have better options than a national bank.

If you own the home outright with no mortgage, you can still get a HELOC, but some lenders are hesitant because they have to be in second position behind any future mortgage you might take out. Ask directly whether the lender will do this before you spend time on an application.

Frequently Asked Questions

Can I get a HELOC if I am self-employed?

Yes, but lenders require more documentation. You will need to provide two years of tax returns, profit-and-loss statements, and sometimes bank statements showing consistent income. Some lenders average your income over two years, which can hurt you if your business is growing. Credit unions and smaller banks are often more flexible with self-employed borrowers than national banks.

How long does it take to close a HELOC?

Traditional banks usually take four to six weeks from application to closing. Online lenders and mortgage brokers may close in two to three weeks. The appraisal and title search are the slowest parts. Expedited appraisals cost more but can shorten the timeline by a week or two.

What if my home value has dropped since I bought it?

The appraisal will show the current value, not what you paid. If your home is worth less than your mortgage balance, you have no equity and cannot get a HELOC. If you have some equity but less than you expected, the lender will offer a smaller line. You can reapply later if your home value recovers.

Do I have to use the HELOC right away?

No. Once you close, the line is available whenever you need it. You only pay interest on money you actually draw. Some lenders charge an annual fee even if you do not use the line, so factor that into your decision about whether to open one.

Can I switch lenders or close my HELOC if I find a better rate?

Yes. You can close a HELOC at any time, though some lenders charge an early closure fee if you close within a certain period (often three to five years). You can also refinance into a new HELOC with a different lender, though you will pay closing costs again. Compare the new rate and terms against your current line to see if refinancing makes financial sense.