What Every Homeowner With Equity Needs To Understand About Helocs

Do you own a home and have equity? If so, you may have heard of a home equity line of credit, which is commonly referred to as HELOC. Perhaps you are wondering how it works and whether it is something you should consider. The following are a few points that every homeowner with equity in their homes should understand. 

Associated Costs

There will be some costs that you can expect when you apply for HELOCs. You will need to get your home appraised and will likely be responsible for that cost. Some lenders may also charge closing cost fees, but unlike appraisal costs, there may be an option to include the closing costs in the loan amount. 


When you decide to open a HELOC, it is important to realize that your home becomes collateral. The lender cannot take possession of your home without reason. However, if you fail to honor the agreement loan agreement, they could legally take possession of your home. This is why your goal should be to ensure that you can make payments on the line of credit and not default.

Credit Score

Some homeowners may end up with lower credit scores than they had when they got their homes. This is sometimes because people may miss payments on certain bills but keep up with their mortgage payments. The dings on credit reports for missed payments can wreak havoc. If your credit score is low, it is possible for some lenders to deny you a HELOC even though you have equity in your home. If you feel that your score has gone down, it is sensible to raise your credit scores before applying. 


Some HELOCs have specific requirements on withdrawals. For example, you may be required to withdraw a certain amount of money each year. If you are opening the HELOC only as a means of having access to money for emergencies, it is sensible to choose a lender that has a low withdrawal obligation.

Future Standing

The lender of the HELOC may monitor your credit. If you fall behind on bills, it is possible for them to close your HELOC account. Some lenders may freeze the funds in the HELOC if they suspect financial doom is imminent. 

A finance advisor like Rio Grande Credit Union is a good resource to use if you have specific questions about HELOCs. They can also help you to better understand whether one is right for you.