1 of 9

Write now Article Tools

Home Equity Lines of credit or HELOCs, as they are more commonly known, can be a great help in getting your financial situation under control, provided that you have the will power to avoid using the line as though it were an atm. One of the optimal uses of a HELOC is for debt consolidation. The interest on a HELOC is generally significantly lower than the interest rates available on most unsecured loans and on credit cards. Therefore, transferring your existing debt onto a HELOC and maintaining the same amount of payments will help you pay down the debt that much sooner. Other uses for HELOCs include paying for home improvements, financing cars, boats and other large purchases, and simply having funds available in case of emergency.

Generally, people only get into trouble with HELOCs under a couple of circumstances. First, if the HELOC is being used for debt consolidation, once you've transferred the debts to the line, it is vitally important not to rebuild the balances on the credit cards. The second place people get into trouble with HELOCs is by borrowing too much of their home's equity. Historically, some lending institutions would allow you to borrow up to 125% of your home's equity on the assumption that the market would continue to increase. As we all now know, this was an erroneous assumption. At this point, most lending institutions have cut back on the maximum amount of your equity that they will loan. The actual amount varies from 65-85% based on the market conditions of your area. To be safe, you should never borrow more then 80% of your home's equity.

Now, in these troubled times, simply obtaining a HELOC can be problematic. Many institutions are simply not offering the product any more. And those that still are have greatly tightened up their lending standards. So, if you hope to get a HELOC, here are some things to consider. Look at your credit report. A free copy can be obtained online from freecreditreport.com. Review the report for inaccuracies and, if you find any, contact the credit bureau and the lending institution involved to get it resolved before you apply. On the bureau, look to see if you have any credit obligations showing. These are debts which are currently overdue, judgments against you, or liens on the property. If you have any of these items, resolve them if at all possible. If it is not possible, disclose them at the time of application with the explanation that you would like to use some

• 1
• 2
• next page >>

Add your voice

Know something about What you should know about home equity lines of credit?
We want to hear your view. Write now!