What is a HELOC? A Smart Way to Tap Your Home’s Equity

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. It lets you borrow against the equity you’ve built—essentially the difference between your home’s current market value and what you still owe on your mortgage.

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• Approval in 5 minutes. Funding in as few as 5 days
• Borrow $20K-$400K
• Consolidate debt or finance home projects
• Fastest way to turn home equity into cash
• 100% online application

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Think of a HELOC like a credit card with a higher limit and lower interest rate. You can draw from it as needed, repay it, and use it again during what’s called the draw period, typically 5 to 10 years.

How Does a HELOC Work?

Here’s how a typical HELOC functions:

• Draw Period (5–10 years): You can borrow money as needed, usually only paying interest during this time.
• Repayment Period (10–20 years): You stop drawing funds and begin repaying both interest and principal.

HELOCs come with variable interest rates, which means your monthly payment could change over time. Lenders typically base rates on the prime rate plus a margin based on your credit profile.

HELOC vs Home Equity Loan

Common Uses for a HELOC

A HELOC offers flexible funding for many purposes, including:

• Home renovations: Upgrade your kitchen or build an addition.
• Debt consolidation: Pay off high-interest credit cards or personal loans.
• Emergency fund: Keep it on standby for unexpected expenses.
• College tuition: Bridge the gap between aid and costs.
• Down payment on a second property: A savvy move for real estate investors.

Pros and Cons of a HELOC

✅ Pros

• Low interest rates: Compared to credit cards or personal loans.
• Pay interest only on what you use: You’re not charged on unused credit.
• Flexible use of funds: No restrictions on how you spend it.
• Revolving credit: Reuse the line as you repay.

❌ Cons

• Variable interest rates: Your monthly payment can increase.
• Risk of foreclosure: The home is collateral.
• Fees and closing costs: May include appraisal and origination fees.
• Temptation to overspend: Easy access to funds can lead to unnecessary debt.

Who Should Consider a HELOC?

A HELOC may be right for:

• Homeowners with significant equity (at least 15–20%).
• People with strong credit (FICO score above 680).
• Those seeking flexible access to cash over time.
• Real estate investors needing capital for down payments or repairs.

How to Qualify for a HELOC

Lenders will look at:

• Equity: Typically, you can borrow up to 85% of your home’s value minus any mortgage balance.
• Credit Score: The higher your score, the better your rate.
• Debt-to-Income Ratio: Most lenders prefer a DTI under 43%.
• Income and employment: Proof of stable income increases approval chances.

Tip: Shop multiple lenders to compare interest rates, fees, and terms.

Is a HELOC Right for Real Estate Investors?

For real estate investors, a HELOC can be a powerful tool for portfolio growth:

• Use it as a down payment source for a new rental property.
• Fund renovations or repairs before refinancing under the BRRRR strategy.
• Have a liquidity cushion during vacancy periods or tenant turnover.

Many investors use HELOCs to bridge funding gaps, especially when traditional financing options are slow or unavailable.

Final Thoughts

A HELOC offers homeowners and investors access to flexible, low-interest capital backed by the value of their homes. Whether you’re renovating, consolidating debt, or expanding your rental portfolio, a HELOC can provide the financial leverage you need—just be sure to use it responsibly.

Unlock Your Home Equity with Figure

• Approval in 5 minutes. Funding in as few as 5 days
• Borrow $20K-$400K
• Consolidate debt or finance home projects
• Fastest way to turn home equity into cash
• 100% online application

Check Rates