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Compare Top HELOC Lenders of July 2024A home equity line of credit (HELOC) is a second mortgage that lets you borrow against the value of your home. Borrowers often use HELOCs to finance home improvement projects, educational expenses, debt consolidation, and more.
Applied Filters: Excellent (760+), Max loan amount: $100,000, State: California
Figure
FigureNMLS#1717824
4.5
NerdWallet rating
Min. credit score
640
Max. loan amount
$400,000
Why we like it
Good for: Borrowers who want a fast closing and to receive their full loan balance upfront.
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at Figure
Rocket Mortgage, LLC
Rocket Mortgage, LLCNMLS#3030
Min. credit score
680
Max. loan amount
$350,000
Why we like it
Rocket Mortgage allows borrowers to take out a home equity loan on a second property, though they don't offer e-closing.
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at Rocket Mortgage, LLC
Better
BetterNMLS#330511
Min. credit score
680
Max. loan amount
$500,000
Why we like it
Variety of property types
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at Better
New American Funding
New American FundingNMLS#6606
Min. credit score
580
Max. loan amount
$750,000
Why we like it
Good for: First-time home buyers and other borrowers looking for a broad array of loan choices.
VIEW RATES
at New American Funding
Bethpage Federal Credit Union
Bethpage Federal Credit UnionNMLS#449104
Min. credit score
670
Max. loan amount
$1,000,000
Why we like it
Good for: borrowers seeking a solid selection of mortgages and the membership-based, not-for-profit business model of a credit union.
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at Bethpage Federal Credit Union
Guaranteed Rate
Guaranteed RateNMLS#2611
Min. credit score
640
Max. loan amount
$400,000
Why we like it
Borrowers who want to know exactly what their payments will be can benefit from Guaranteed Rate's fixed-rate option.
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at Guaranteed Rate
Achieve
AchieveNMLS#1810501
5.0
NerdWallet rating
Min. credit score
640
Max. loan amount
$150,000
Why we like it
Predictable payments that include both principal and interest
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at Achieve

How a HELOC works

A HELOC works similarly to a credit card: you’re able to borrow up to a certain limit as needed, rather than taking out a lump sum all at once. Unlike a credit card, however, you shouldn’t use a HELOC to pay for everyday expenses. Just like with your first mortgage, you could lose your home to foreclosure if you aren’t able to make payments. Because of this risk, it’s best to use your equity to reinvest in your home with projects that will increase its value.

The lender uses your home’s value to set the HELOC limit, and they’ll let you borrow a percentage of what you own. You may borrow during a draw period that lasts for several years (usually 10) and pay interest only on the balance. After the draw period ends, you may no longer take money out, and you pay the principal plus interest.

To obtain the best HELOC rates, make sure you comparison shop, preferably among at least three lenders. By shopping around, you're likely to find the combination of features and interest rate that make the best home equity line of credit for your needs. The best rates are also typically reserved for borrowers with excellent credit scores and low amounts of existing debt.

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» MORE: Understanding home equity lines of credit

Pros and cons of HELOCs

A HELOC's main advantage is that it offers flexibility. During the draw period, the minimum monthly payment usually covers just the interest on the balance, and you aren’t required to pay principal.

A HELOC can have a variable interest rate, which means it can go up or down over time. When the interest rate rises, the minimum monthly payment may increase, too. Less commonly, some lenders offer a fixed-rate HELOC option, meaning that you can lock in some or all of the loan balance at a specific APR.

There are two major disadvantages to a HELOC: The interest rate can rise, and you can get in over your head if you're not careful. You may end up borrowing so much that you can't comfortably afford the principal and interest during the repayment period.Defaulting on a HELOC could put your home at risk of foreclosure.

Alternatives to HELOCs

A HELOC is not your only option for tapping your home's equity. If you know exactly how much you need to borrow, you may consider a home equity loan, which you receive as a lump sum and pay back at a fixed rate.

While this has less flexibility than a HELOC, payments are predictable.

If you need to borrow more money than you'd qualify for with a HELOC or home equity loan, a cash-out refinance may be the right choice for you. This replaces your original mortgage with a larger one, and you receive the difference between the value of the loan and the amount you currently owe in cash. If rates have risen since you closed on your mortgage, this is unlikely to be your best option.

Finally, if you cannot qualify for a HELOC but absolutely need cash flow, a shared appreciation agreement may be worth exploring. This transaction allows you to sell off a stake in your future equity earnings to a company in exchange for an advance on some of your current equity. This type of agreement is typically for homeowners with a lot of equity but little cash reserves, and most consumers are better served by a HELOC if they can get one. You risk losing out on equity profits by mortgaging the future value of your home, so think carefully before choosing this option.

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Frequently asked questions

  • Lender requirements vary, but typically you'll need a credit score of 620 or higher. Taking out a HELOC will probably reduce your credit score temporarily when it appears on your credit report.

  • The interest you pay each year on a HELOC is tax-deductible up to a limit as long as the borrowed money is used to buy, build or substantially improve your home, according to the IRS.

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