Home Equity Line of Credit (HELOC)

There are several factors that affect eligibility for a line of credit such as a HELOC, but first things first: it requires a residence to serve as collateral. Whether you’re using a residence that is in your name or someone else is pledging their home as collateral, the HELOC borrows against equity of that property. Therefore, the appraised value of the residence in question is a key consideration during the HELOC application process.

Your lender will also want to know how much you’re looking to borrow and will consider your employment and/or income and your financial history when reviewing your application.

Remember, eligibility is just one step in the process of applying for a line of credit such as a HELOC. Consider what needs you have and your plan for repayment before making this long-term financial decision.

Home equity loans and home equity lines of credit are two types of financing that leverage the equity in a residential property.

Home equity loans (sometimes called HELoans) are structured in a similar way to your original mortgage: monthly payments typically include principal and interest based on the terms of your loan. Once the funds are disbursed, however, you cannot reuse them like you can with a HELOC.

When choosing between a HELOC versus a HELoan, consider whether you’re looking for flexibility over a longer term or for a one-time use of funds.

Determining your equity, or the value of your home against what you owe, may or may not require an appraisal. This depends on factors such as the amount of funds you’ve requested with your HELOC application. SouthEast Bank’s lender team leverages valuation tools, public records, and/or a full appraisal in order to make a determination. You may request an appraisal during this process, which may be helpful if you have concerns about your property’s value.

Many people choose a HELOC to make improvements to their home, consolidate their debt, make a large purchase, or help pay for college—in other words, financing things that may “pay you back.” A HELOC offers the flexibility to draw on funds as you wish for those needs that may be beyond your everyday budget.

The riskier the purchase is, the harder it may be to repay what you owe, which is why it’s typically recommended not to use HELOC funds for investments or big-ticket luxury items.

Applying for a HELOC may have short-term and long-term effects on your credit score. As with any loan application, a hard credit check may temporarily knock your credit score down by a few points.

Once you receive and begin using your HELOC, making regular, on-time payments typically improves your credit score. On the other hand, getting behind or making late payments can negatively impact your score. Learn more tips about maintaining a healthy credit score here.

SouthEast Bank only offers mortgages, home equity loans, or HELOCs for properties in Tennessee.