Home Equity Line of Credit: Harder to Get, but Worth the Effort SPONSORSHIP

While home equity loans and lines of credit have become more difficult to obtain recently, it's less about lenders not wanting to lend, and more about people not being able to qualify.

The good news is, for those who do qualify, a home equity line of credit is among the lowest-interest borrowing you can do. As of the first week in July, the average rate was 4.77 percent for a HELOC, while average for a home equity loan averaged about 7 percent, according to Bankrate.com.

A home equity loan is a one-time sum that is paid off over a set amount of time, with fixed monthly payments and a fixed interest rate. A line of credit is more like a credit card: you can borrow from it as you need, up to a certain amount. Payments will vary based on how much you owe, and the interest rate will vary.

If you want to approach your bank about obtaining either a home equity loan or a line of credit, there are a some things that will help you gauge whether you will be approved.

Do you have a good credit score?

Do what you can to keep your credit score in the 700 range. The higher your credit, or FICO, score, have a much better chance of being approved for any type of loan.

Do you have a lot of equity in your home?

If you put 20 percent down, and the value of your home has not dropped precipitously since you purchased it, then you are in good shape. Lenders will not approve home equity loans to anyone who does not have at least 20 percent equity in their home.

Can you go to a smaller bank?

If your credit rating is good, and you have a good amount of equity in your home, then you are ready to approach your bank. But shop around. Not all banks are offering the same rate. And don't rule out smaller, community-based banks and your credit union, if you have access to one. They have competitive rates, and right now, they are more willing to lend than some of the bigger banks that have become gun-shy about making any kind of loan. Online lenders are also a good option.

While too much debt, especially home equity and mortgage debt, is a main contributor of what has gotten our economy into the mess we are slowly climbing out of, we can't abandon borrowing altogether. But we can be smarter about it.

Fixing the roof – good reason for a HELOC. Another silk tie? Not so much.

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