Frequently Asked Questions

Misconception: HELOCs are only available as a loan on top of a mortgage. However, getting a HELOC as your only loan is simple. All you need to do is refinance your existing mortgage so that the HELOC pays off the entire mortgage. That puts the HELOC bank in the first-lien position.

There are banks that will offer up to 95% financing on a primary residence if it’s been owned for 12 or more months. In addition, you may be able to get up to 95% financing on a new primary residence purchase. In a purchase transaction, the appraisal value and purchase price will be compared, and the LTV will be based on the lower of the two. Then, all you need to do is put 5% down.

For a second home or investment property, it’s more typical to get a HELOC worth 80% loan to value.

Yes, and if you choose the right HELOC, your minimum payment will be interest-only.

Some lenders offer to pay third-party closing costs. However, no lender “pays your closing costs.” They just price the loan to make up the cost somewhere else. You may not see it, but it’s there.

Out of all the programs we are aware of, the ones with the best, most borrower-friendly features (here’s looking at you, Direct Deposit to HELOC!) do not offer to “pay closing costs.” For that reason, we generally recommend that homeowners go with the better program that offers more long-term interest savings – not simply the one that pretends to save you money on the closing date.

If you haven’t downloaded the ebook yet, please do yourself a favor and download it now. On page 24, we explain exactly why direct deposit to HELOC makes such a big difference over just 1 year. The benefits only increase with each passing year as you pay down your balance.

The short answer is this: you pay more interest without direct deposit. Our goal (and hopefully your goal as well) is to pay less interest. Very few banks offer direct deposit, so we strongly encourage you to choose a HELOC with that feature.

Ideally, your bank should order a complete, third-party appraisal. It should be an on-premises appraisal, not simply done over the internet, so you’ll end up with a more accurate valuation. This type of appraisal is performed by a party neither you or the bank has any relationship with, and at no point will their identity be disclosed. This protects the interest of both you and your bank.

Some banks do assess home value without going to the location. To ensure a fair appraisal, look for a bank that will actually go to your home.

Most lenders do require that you own your home for a specified length of time before refinancing into a first-lien home equity line of credit. This period is called “seasoning,” and is often around 12 months. Some banks will work with you if you’ve owned your home for less time, so do ask about your options before deciding you can’t do it.

Yes. All you need is proof of income. Your tax return and 1099 should provide all the support you need.

More than likely, if you have adequate income and positive cash flow, this strategy can work for you and you should have no problem getting approved. Proof of investment income or retirement income will be required, of course.

That’s a good question. While every bank has (very) slightly different requirements, a good rule of thumb is that your credit score needs to be at or above 660 before you can seriously think about getting a HELOC. Bear in mind that 660 is the minimum. But higher is better. For instance:

  • With a 660 score, you may be eligible for a line of credit worth 70% of your home’s value
  • With a 720 score, you may be eligible for a line of credit worth 95% of your home’s value

All banks use a different scale, so don’t assume anything! Make sure you get details in writing from your lender.

There’s no cookie-cutter answer to this question. Every situation is different. So, to answer, we’ll assume 2 things:

  1. Your past financial trouble is resolved
  2. Your current financial standing is remarkably sound

If that’s you, then yes, you may qualify … if your trouble is far enough behind you. We’re talking about time, here. Most banks will hold to a 4-5 year period of financial stability after a negative financial event. These events can include:

  • Foreclosure
  • Bankruptcy
  • Short sale
  • Lawsuit resulting in a judgment of liability

For more specific answers, ask your prospective lender. Their team should be well equipped to help.

For this strategy to work well for you, your debt-to-income ratio (DTI) needs to be as low as possible. Positive cash flow is the engine that turns the wheel of balance paydown. If you’re worried your DTI may be too high, think about using your income to cut some other debt before starting the process.

It’s not complicated, but the answer does take up some space. Click the button below to download the free ebook. In it, we discuss HELOC interest calculation.

For this strategy to work the way we discuss in the ebook, you will preferably have a HELOC based on Average Daily Principal Balance (ADPB).

The other option would be a HELOC based on Average Monthly Principal Balance. ADPB is far better because it enables you to pay less interest the very next day after making a payment against the balance. As soon as your payment posts, your daily balance drops. Then, at the end of the month, the average daily principal is calculated, and your monthly interest-only payment statement is issued.

Most banks issue home equity lines of credit based on ADPB.

“Stuck” is probably the wrong word. Yes, you may find a fixed-rate HELOC. We don’t prefer them. Often, because rates rise and fall, the fixed rate is higher than the variable rate. Rather than constantly switch your fixed rate to a variable rate to take advantage of the lower rate, you probably want to start out variable and stay there.

Remember, the rate, either fixed or variable, isn’t the “bad guy.” The principal balance is your enemy. The higher the balance, the more interest you pay. Drive down the balance, and you’ll see less influence from the rate. If you’re paying down the balance quickly, you don’t need to fear the variable rate!

Using the strategy you can find on our site, positive cash flow and quick balance paydown can take the potential sting out of the variable rate and turn it to your benefit. Keep that in mind.

You can get HELOCs with draw periods anywhere from 5 to 10 years long, followed by a repayment period of anywhere from 10 to 20 years.

Count on your HELOC to take 30-45 days from application to closing. It will help you to get all your documents in order before you apply.

Most banks ask for, at minimum:

  1. W2 or 1099 DIV income statements covering the last 2 years
  2. Your Federal tax returns for the last 2 years
  3. At least 3 months of bank statements
  4. Pay stubs from your last 2-4 pay periods
  5. Proof of secondary income
  6. Proof of investment income

Click here for a complete list of documents you can gather to smooth out your application process.

There is no way to tell. But you can make some educated guesses. If you:

  • Have a credit score of 660 or higher
  • Have more income than you spend each month (the more, the better)
  • Have had no financial trouble recently (during the last 4 years, resulting in a bankruptcy, short sale, etc.)
  • Have good financial discipline (this is vital!)
  • Have few other debts and plan to keep it that way
  • Have at least 10% home equity built up
  • Have absolute determination to gain financial freedom
  • Have strong motivation to see the process through

… then you may be a good candidate to pay off your home quickly. How quickly? That depends how much of your income you’re able to dedicate to paying down the balance. You can play with the numbers for your unique situation – just use our HELOC calculator here.

For more information, read the free ebook!