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Can I increase the limit on my HELOC?
Increasing your HELOC limit is a relatively straightforward process that can be done several ways, depending on the lender and the terms of your current HELOC. Typically increasing a HELOC limit can be achieved by refinancing your current HELOC or applying for a new HELOC. Additionally, some lenders may offer the ability to modify your current HELOC limit without requiring a refinance of the loan.
At Credit Union of Southern California (CU SoCal), we make getting a Home Equity Line of Credit (HELOC) easier.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products. As a full-service financial institution, we look forward to helping you with all your banking needs.
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What are HELOCs and how do they work?
HELOCs are granted to homeowners by credit unions, banks, and online lenders. Getting a HELOC is based on home equity, which is the fair market value of a home minus any outstanding liens connected to the home, such as a mortgage.
A HELOC is a revolving line of credit that can be used again and again. Revolving credit (like credit cards) is automatically renewed as the amount you owe is paid off.
How does home appreciation and depreciation affect my HELOC limit?
A HELOC allows you to take out a loan based on your home’s equity. A home's fair market value may increase or decrease due to a variety of factors such as the local real estate market, supply and demand, improvements made to the home, etc.
As the market value of a home fluctuates, so will the ability of the homeowner to get a HELOC.
When you apply for a HELOC the lender will determine how much of a loan you qualify for based on the amount of equity you have in your home, your credit score, debt-to-income ratio, and other factors. The more equity you have, the more you’ll likely be able to borrow. The maximum HELOC amount that will be offered to you will depend on your ability to meet the lender’s HELOC eligibility requirements.
How to increase your HELOC limit
When you are approved for a HELOC you will be allowed a specific dollar amount limit. If you find that you need more cash than you were originally approved for, it may be possible to increase your HELOC credit line. Here are three strategies for increasing your HELOC limit:
- Ask for a loan modification. A loan modification typically refers to negotiating with your lender on the terms of your existing loan to make payments more affordable. If you are unable to pay your current loan balance, speak to your lender immediately to learn what they can do to assist you. However, if you are interested in increasing your HELOC loan limit your lender may consider your request by looking at your home’s current market value, your credit score, your debt-to-income ratio, and assessing your ability to repay a higher loan amount.
- Apply for a new HELOC. Applying for a new HELOC could be easier and more cost-effective than requesting a loan modification. Taking on a second HELOC means adding debt to your debt burden, so run the numbers carefully to be sure you can afford an additional HELOC.
- Refinance your current HELOC. You may be able to refinance your HELOC balance into a new HELOC with a new interest rate and terms. Before refinancing, consult with your current lender on whether they charge fees or a pre-payment penalty for paying off your HELOC before the current term is up.
Advantages to increasing your HELOC limit:
- Increased access to funds. Using a HELOC to pay for college tuition, pay medical bills, or start a small business are good uses for a HELOC. Investors may use a HELOC to purchase an investment property.
- Increase home value. Using a HELOC to make home improvements, such as replacing the roof and windows, can increase your home’s value and increase your home’s equity.
- Debt consolidation. Credit card interest is typically higher than the interest rate on HELOCs, so using a HELOC to pay down high-interest credit card debt could save you money.
Drawbacks to increasing your HELOC limit:
- Fees. Lender fees may include a credit score fee, home appraisal fee, loan processing and loan origination fees.
- Higher interest rates. The more money you borrow the higher the interest rate may be to cover the additional risk the lender is taking on by lending more money.
- Underwater risk. Using a HELOC decreases the amount of equity you have in your home. If the market value of your home drops, your home may be worth less than the amount of your outstanding loans. If you were to sell your home, you could end up still owning money to the bank.
Here are additional HELOC pros and cons to consider.
Eligibility requirements for increasing your HELOC limit:
Whether you’re seeking an HELOC increase from your current lender or considering applying for a new HELOC, there are some basic requirements that all lenders will look for, including making sure:
You've made on-time monthly mortgage payments. You’ll need to provide proof of on-time payments.
Your home value has increased. A property appraisal may be ordered, or the lender will use online valuation data to determine the approximate market value of your home.
You're earning more money and/or paid down debts. You may be asked to provide your W2, 1099 tax returns, as well as pay stubs to show your income. You may also be asked to list your monthly recurring debts.
Alternatives to increasing your HELOC limit
If you are not able to increase your HELOC limit due to the lender restrictions or bad credit, here are some other options to consider:
Personal Loans: Credit unions and banks offer a wide variety of secured and unsecured personal loans, to meet a wide variety of borrowing needs. You’ll find variable and fixed rate personal loan options.
Cash-Out Refinance: With mortgage interest rates very low, refinancing your current mortgage to a new mortgage loan could help you lower your monthly payments. Getting cash-out means borrowing more than what you owe on your current mortgage and getting a cash disbursem*nt of the extra funds at closing. You can use the cash any way you choose.
Credit cards. Although credit cards charge a high interest rate, if you need money to pay medical bills or pay for essential expenses, credit cards may be a good back-up plan.
Home Equity Loan: Home equity loans typically feature a fixed interest rate and the money is provided as a lump sum. Once you receive the funds repayment begins immediately and monthly payments are based on the full loan amount.
Is increasing your HELOC limit worth it?
Increasing your HELOC limit can provide money to pay for college tuition, medical bills, home improvements, or starting a small business. Because a HELOC involves using your house as collateral, be sure you’ll be able to pay back the amount you borrow. A HELOC is a type of second mortgage, meaning that if the loan is not repaid, the lender can foreclose on your home to recover the value of the money you owe.
If you want money for a vacation or purchase luxury items, then an unsecured personal loan would be a safer option that doesn’t put your home at risk.
Why Savvy Consumers Choose CU SoCal
For over 60 years, CU SoCal has been providing financial services, including HELOCs, car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Get Started on Your Home Equity Loan Today!
