Whether you are concerned about debt consolidation or if an upcoming major event is keeping you up at night, a HELOC can be one of the top ways to overcome the financial challenges in your life. If you are also considering a HELOC as a way to cater to your financial needs, you will need enough equity in your home to qualify for it. The stronger equity you have, the better rates and terms you are likely to get.
A Home Equity Line of Credit (HELOC) is a flexible, secured line of credit where you borrow against the equity you’ve built up in your home. It’s like a revolving credit card, allowing you to access funds when needed and repay them as you go, all while paying interest only on what you borrow.
If you are not sure where to begin building equity in your home, here are some of the best tips to consider.
Make Mortgage Payments in Advance
One of the quickest and easiest ways to reduce your loan balance faster is to make extra mortgage payments. When you pay more than the amount you are required to pay monthly, you can reduce your loan faster, leading to increased equity.
Even if you make one extra payment in a year, it can add up significantly over time and yield several benefits for you, especially when it comes to qualifying for a HELOC.
To further check the qualification scenario and move further with the process, you can also schedule a professional appraisal with experts at Amerisave, saving you time and money.
Choose a Shorter Loan Term
If you are trying to qualify for a HELOC, one of the best things you can do is to refinance to a shorter loan term. This step can make a significant difference in acquiring a HELOC.
For example, a 15-year mortgage has higher monthly payments but builds equity faster than a 30-year loan due to lower interest. In addition, it also comes with a faster principal payoff.
While a shorter loan term can seem like an appealing solution, make sure that the new repayment plan you choose fits your budget in the long run.
Improve Your Home
In order to qualify for HELOCs, you must look into ways to improve the value of your property. It is one of the best ways to benefit you as a homeowner in the long run due to a high return on investment.
If you are not sure where to begin, it is always a good idea to start with your bathroom and kitchen. This way, you can increase the difference between your home’s market value and your mortgage.
You can also look into ways to make your home more energy efficient, such as changing the windows or installing insulation in the loft. These changes cannot only improve the value of your home but also build equity in your home and qualify you for a HELOC.
Avoid Additional Mortgages
If you are rooting for HELOCs, one of the worst things you can do is to take on a second mortgage. Having additional loans, such as second mortgages, can reduce the total equity available.
When you take out a second mortgage, you are borrowing against your home’s equity. This reduces the amount of equity you have available for future borrowing. If you already have a second mortgage, do your best to pay it down before you apply for a new HELOC.
For more inspiration on how to upgrade your home, check out my office renovation article.
