An equity line of credit is a line of credit that is secured by the equity in a home or property. These are often Home Equity Lines of Credit (HELOC) for personal loans, but businesses may take out equity lines of credit as well. To qualify for an equity loan, you must have equity available in your property. This means that what you owe on the property must be less than its value. For Home Equity Lines of Credit (HELOC), you can typically borrow up to 85% of the equity in your property minus what you owe. It is possible to take out an equity line of credit on an investment property, but the qualifications are more stringent. You will likely need a credit score of at least 680, a significant amount of cash at the ready, and a history of successful real estate investment. You do not need a reason to open an equity line of credit, but there are strict requirements to qualify and opening one can have serious implications. Using a home or property as collateral for a line of credit puts the assets at needless risk.How to Get an Equity Line of Credit
Equity Line of Credit on Investment Property
Do You Need a Reason to Open an Equity Line of Credit?
Equity Line of Credit FAQs
An Equity Line of Credit (or Home Equity Line of Credit) is a type of loan that uses the equity in your home as collateral to provide you with a revolving line of credit. This allows you to borrow up to a certain percentage of your home's value, typically around 85%, and use it for anything from debt consolidation to renovations.
In order to qualify for an Equity Line of Credit, you must have built up enough equity in your home and meet certain credit criteria set by the lender. You will also need to demonstrate that you can make regular payments toward your loan each month.
An Equity Line of Credit differs from a Home Equity Loan in that it provides you with a revolving line of credit rather than one lump sum. You can access this credit as needed and pay it back over time, making the repayment process more flexible.
The main advantage of taking out an Equity Line of Credit is that it provides you with access to funds when you need them without having to apply for additional loans or use other forms of financing. Additionally, because you are using your home's equity as collateral, these loans tend to have lower interest rates than other types of loan products.
Before taking out an Equity Line of Credit, it's important to consider the terms and conditions of your loan agreement, as well as how much you can realistically afford to borrow and pay back each month. Additionally, it is important to be aware of any potential risks associated with using your home's equity as collateral in case you are unable to make payments on time.
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.