How to get the best HELOC
In today's high-interest-rate environment, many homeowners find themselves with limited options. They want to avoid purchasing a new home and getting saddled with a significantly higher interest rate than their current one. And they may not want to refinance for similar reasons. Instead, homeowners should seriously consider using the equity they've already accumulated in their current home to improve their house and living circumstances.
They can finance major home repairs, improvements and renovations with a home equity loan or a home equity line of credit (HELOC). These options often come with lower interest rates than credit cards or personal loans and have favorable tax benefits if used for IRS-eligible home improvements. That said, just like any other financial product or service, there are some reliable guidelines homeowners can utilize to improve their chances of getting the best HELOC out there.
Start by exploring your HELOC options here now to see how much you could borrow.
How to get the best HELOC
There are multiple ways - and times - to get a great HELOC. Here are three ways owners can get the best one now.
Shop around for lenders
There's a common misconception that owners must use their current lender to borrow from their existing home equity. But that's not always the case. There are multiple banks and lending institutions that would be happy to have your business. So don't be afraid to shop around for HELOCs. Compare rates and terms from at least three different lenders. Then take those quotes back to your current lender to see if they can meet or beat those offers.
When reviewing your options, just be sure to complete an accurate, side-by-side comparison. So if you get a quote for a HELOC for $20,000, make sure to get quotes for the same amount from a second and third lender, too. This will ensure the lender you ultimately choose was the very best of all the options you considered.
Explore HELOC lenders here now.
Improve your credit score
Before applying for new credit, it never hurts to boost your credit score as high as possible. This is also true for homeowners looking to tap into their home equity. The best terms and lowest interest rates go to those with the highest credit scores and cleanest credit histories.
So make your best effort to get your credit in shape before applying. Yes, you can potentially refinance your HELOC down the line, but that will be an added expense and headache you coule avoid by improving your credit now.
Pay down high-interest debt and stop growing your balance as soon as possible. And don't apply for any new credit in the interim. New applications may require hard credit checks, which can ding your score and hurt your chances of getting a low-interest rate HELOC.
Use it for the right reasons
A home equity loan or HELOC can be beneficial if used for the right reasons. Conversely, it may not be as beneficial as other credit types if used for incorrectly. Specifically, if you need to pay for major home repairs or improvements, a HELOC is the right choice. That's because the interest on HELOCs is usually tax-deductible if used for IRS-eligible reasons.
"Interest on home equity loans and lines of credit are deductible only if the borrowed funds are used to buy, build, or substantially improve the taxpayer's home that secures the loan," the IRS explains online. "The loan must be secured by the taxpayer's main home or second home (qualified residence), and meet other requirements."
This doesn't mean you can't use a HELOC for other purposes. But you won't get the interest tax deduction if you use it to pay for things like education expenses or a wedding.
Explore your HELOC options here now to learn more.
The bottom line
A HELOC is a great resource for homeowners in today's inflationary, high-interest-rate environment. But like all credit sources, there are better ways to approach it than others.
Specifically, potential borrowers should first shop around to make sure they've truly secured the lowest rate and best terms. They should also do their best to improve their credit before applying. And they should use a HELOC for the right reasons - like a home repair or improvement - to get the tax deduction when they file their taxes for the year they used it.
