The coronavirus has left tens of millions of people across the United States unemployed or with substantially reduced earnings. Many families are struggling to pay their bills and wondering what they can do to get by. If you have built up a significant amount of home equity after years of paying your mortgage, you might want to consider tapping into it using a home equity line of credit.
What is a HELOC?
Home equity is the difference between your house’s current market value and the outstanding mortgage balance. A home equity line of credit could allow you to access a portion of your equity. A HELOC works similar to the way a credit card does, in that you could choose how much money to spend and when, and you would then make payments based on the amount of the available credit you used.
HELOCs, like credit cards, typically have variable interest rates. The interest rate for a home equity line of credit depends on several factors, including a homeowner’s credit score, and is typically much lower than the rate for a credit card. If you can qualify for a HELOC, it may be a better alternative than a credit card.
Why it Might be Hard to Get a Home Equity Line of Credit Now
If you have not previously been approved for a HELOC, you would need to go through an underwriting process. That can be time-consuming, even under normal circumstances. Lenders have been flooded with applications recently and have tightened their requirements. That means that you might submit an application and wait a significant amount of time, only to learn that your application had been rejected.
Homeowners who take out a home equity line of credit and are unable to pay their bills can eventually go into foreclosure. Given the current economic crisis, lenders are worried about that, so they are being cautious when deciding whether to approve applications for home equity lines of credit.
Lenders are being particularly careful when it comes to verifying employment status. They often check multiple times, including right before approval, to make sure a borrower has a job. Many lenders are also requiring higher credit scores and are not letting homeowners tap into as much of their equity through a HELOC as they could before the coronavirus pandemic.
Should You Apply for a Home Equity Line of Credit?
A home equity line of credit could be a lifeline in these tough economic times, but it could also be risky. It might be difficult to qualify and you could lose your home in foreclosure if you were unable to keep up with your payments. Think it over carefully and explore other options if you need funds right away.