Is it hard to get a HELOC?

A home equity line of credit (HELOC) could be an effective way to consolidate high interest debt, pay for home repairs and renovations or take care of a wide range of other expenses. These lending options typically come with competitive interest rates since they're backed by your home. And with some economists predicting that lower interest rates are on the horizon, the fact that HELOC rates are typically variable could be a plus. 

It's no surprise if you're interested in using a HELOC to tap into your home's equity - these loans can come with several benefits. But how hard is it to get approved for one? If you don't qualify for a HELOC now, is there anything you can do to improve your chances of approval later? Below, we'll break down what you need to know.

Find out if you qualify for a HELOC now. 

Is it hard to get a HELOC?

HELOCs usually aren't difficult to qualify for as long as you meet a few basic lending requirements. These requirements involve all of the following:

• Your equity: Most lenders require borrowers to have at least 20% equity in their homes to qualify for a HELOC, though some lenders may approve your loan if you have slightly less equity and a strong overall application. 
• Your credit: The majority of lenders only approve borrowers with credit scores in the mid-600s or higher. There may be lenders that offer loans to borrowers with lower scores, but you may have to pay less than competitive interest rates and fees if you opt for these options. 
• Your debt-to-income ratio: You'll typically need a debt-to-income (DTI) ratio at or below 43%. However, your chances of approval are better with a lower DTI. 
• Proof of income: Finally, your lender will likely want to see proof of your income to make sure you earn enough money to pay the money you borrow back.    

How to improve your chances of approval

If you meet the requirements above, there's a strong chance that you can get approved for a HELOC. But, what if you don't quite qualify? Here are a few things you can do: 

• Improve your credit score: If your credit score is below 620, chances are that you'll have a difficult time getting approved for a HELOC. Taking steps to improve your credit score could increase your chances of approval in the future. 
• Pay off some debt: If your debt-to-income ratio is too high to qualify for a HELOC, adding more debt to the mix might not be the best idea. Work to pay off some of your outstanding debts before you apply for a HELOC. 
• Get a cosigner: Consider reaching out to friends and family to find a cosigner. If your cosigner has a strong credit score and overall application, they may be your key to approval.   

Compare your HELOC options today. 

Why you might want to consider a HELOC

There are several reasons to consider getting a HELOC in today's market. Some of the biggest reasons you may want to use a HELOC to tap into your home equity are: 

Lower interest rates relative to other loans

"A HELOC typically allows you to borrow at a more competitive interest rate relative to other options that aren't secured by collateral," says Mark Charnet, founder and CEO of American Prosperity Group in Sparta, New Jersey. 

It's also worth mentioning HELOCs almost always have variable interest rates. That could be good news considering the current interest rate environment. With cooling inflation, many believe the Federal Reserve may begin to reduce interest rates ahead. If you get a HELOC now and rates fall, you'll likely enjoy a lower interest rate in the future. 

Potential access to a higher borrowing limit

A HELOC "may allow you a higher limit to borrow against," explains Charnet. That's especially the case, "if you have a lot of home equity."  

The truth is that even if you wanted to use other lending options to cover some expenses, you may not be able to because of borrowing limits. The amount of money you can borrow as part of your HELOC depends on the amount of equity you have. So, if you have a significant amount of equity in your home, chances are that you can access more money with a HELOC than you can with a personal loan or credit card. 

Potential tax benefits

"There is also a potential benefit of being able to deduct interest on the HELOC payments on your taxes if funds are used to improve your home," says Charnet. 

However, it's important to keep in mind that this tax advantage comes with specific requirements: 

• Home repairs: You can only write interest off on the portion of your HELOC you use to repair or renovate your home. So, if you don't use 100% of the money you borrow to repair or renovate your home, you likely won't be able to write off 100% of your HELOC's interest.
• Where repairs are done: You must use your HELOC to repair the home you borrow against to qualify for this write off. So, you won't be able to write your interest off if you borrow money on your primary home to fix your vacation home.    

Get access to the money you need with a HELOC now. 

The bottom line

It's relatively easy to get a HELOC. That's especially true if you meet the requirements mentioned above. However, if you don't qualify for a HELOC today, there are a few things you can do to improve your chances of approval in the future.