Your home is more than just a place to live, it’s a valuable financial asset. As you build equity over time, you gain the opportunity to leverage that value to meet a variety of financial needs. One of the most flexible ways to access your home equity is through a home equity line of credit (HELOC).
A HELOC allows homeowners to borrow against their home’s equity as needed, making it a popular option for funding home improvements, consolidating debt, or covering unexpected expenses. But how exactly does a HELOC work, and is it the right option for you?
In this guide, we’ll break down what a HELOC is, how it works, and what to consider before applying—so you can make informed decisions about your financial future.
What is a home equity line of credit (HELOC)?
A HELOC is a flexible financial tool that lets you borrow against the equity in your home. Whether you’re planning renovations, consolidating debt, or managing unexpected expenses, a HELOC provides access to funds on your schedule. The credit limit is based on the equity you’ve built in your home, and you can borrow as little or as much as you need, up to that limit.
How does a HELOC work?
A HELOC typically consists of two phases: the draw period and the repayment period. Here’s how it breaks down:
Draw Period: The draw period typically lasts 5-10 years, during which borrowers can access funds as needed up to their credit limit. You can transfer funds to your bank account, write a check, or even use a HELOC debit card, depending on your lender. During this time, borrowers typically make interest-only payments, although some lenders allow principal payments without penalty. Others may charge early repayment fees, so it's important to review your loan terms.
Repayment Period: After the draw period ends, the repayment phase begins, usually lasting 10-20 years. During this period, borrowers make monthly payments on both principal and interest, with payment amounts based on the remaining balance and loan terms.
Costs and Timeline
How fast can you get a HELOC? Timelines vary by lender, but many providers offer expedited processes that can take as little as five business days. With Figure, we’re talking as few as five days. 2navigates to numbered disclaimer
What’s the cost? Costs can also differ, with some lenders, such as Figure, offering transparent, low-fee structures compared to traditional banks.
HELOC requirements: How to qualify
Qualifying for a HELOC may be easier than you think. While requirements vary by lender, here are the common factors most providers consider:
Home Equity: Most lenders require homeowners to have at least 15-20% equity in their property.
Credit Score: A credit score of 620 or higher is typically needed, though higher scores may unlock better rates.
Debt-to-Income (DTI) Ratio: A DTI of around 40% or less demonstrates your ability to manage additional debt.
Income Verification: Lenders will require proof of income to ensure you can repay the borrowed funds.
Meeting these qualifications can improve your chances of approval and help you access your home equity.
How HELOC rates work and what to expect
Traditional HELOCs typically have variable interest rates, meaning your payments can fluctuate based on market conditions. However, some lenders, like Figure, offer HELOCs with a fixed-rate option1navigates to numbered disclaimer, providing more stability than a traditional variable-rate HELOC while maintaining the flexibility to borrow as needed.
When evaluating a HELOC, it's important to consider how the interest rate structure aligns with your financial needs and risk tolerance.
How to get a HELOC
To get a HELOC, you'll need to meet key eligibility requirements, including sufficient home equity, a strong credit score, a low debt-to-income (DTI) ratio, and a stable income. The process varies by lender—traditional banks may take weeks to approve and fund your HELOC, while online lenders like Figure offer a faster, fully digital application with funding in as little as five days2navigates to numbered disclaimer. Start by checking your eligibility, comparing lenders, and choosing the option that best fits your financial needs.
How much can you borrow on a HELOC?
This depends on your home’s value and how much equity you have. Generally, lenders allow you to borrow up to 85% of your home’s value minus any outstanding mortgage. You'll need to have a good credit score, have a reliable payment history, have a low enough debt-to-income ratio (DTI), and have enough available equity in your home to qualify. With Figure, you can access up to $400,0003navigates to numbered disclaimer, depending on your qualifications.
What can you use a HELOC for?
Homeowners can use home equity for a variety of purposes. The key is to choose a borrowing option that aligns with your financial goals and repayment ability. Common uses include:
Home Improvements: Remodel your kitchen, add a new deck, or build that home office you’ve been dreaming of.
Debt Consolidation: Pay off high-interest credit cards or personal loans with a lower interest rate.4navigates to numbered disclaimer
Emergency Expenses: Cover unexpected medical bills, car repairs, or urgent home fixes.
Life Events: Fund major life milestones like education expenses, family planning, or retirement needs.
A HELOC empowers homeowners with financial flexibility, helping you manage both planned and unexpected expenses on your own terms.
Pros and cons of a HELOC
Before applying for a HELOC, it's important to weigh the benefits and potential drawbacks:
Pros
Flexibility to borrow what you need, when you need it
Potentially lower interest rates compared to credit cards or personal loans4navigates to numbered disclaimer
Depending on the lender, interest-only payments during the draw period can help manage cash flow
Interest may be tax-deductible if used for home improvements (consult your tax advisor)
Cons
Variable interest rates can lead to unpredictable monthly payments
Your home serves as collateral, putting it at risk if you default
Draw periods eventually end, potentially transitioning into higher monthly payments during repayment, depending on the lender
Possible fees for origination, early repayment, or annual maintenance
Unlock the power of home equity with a Figure HELOC
A HELOC is a valuable way for homeowners to access cash, offering flexibility to borrow as needed and pay interest only on what’s used. Finding the right lender is key to meeting your unique borrowing needs.
Figure’s fully digital application can provide approval in minutes and funding in as few as five days2navigates to numbered disclaimer. Our fixed-rate1navigates to numbered disclaimer option offers more stability than traditional HELOCs while preserving the flexibility you expect. Plus, with no hidden fees, our transparent pricing ensures no surprises.
Whether you’re looking to buy, renovate, or tackle high interest debt, unlocking your home equity could be the game changer you didn’t know you needed. And the best part? You don’t have to figure it all out at a bank, you can start right now.
Additional FAQs about HELOCs
Is getting a HELOC a good idea?
Yes, if you need flexible access to funds and have equity in your home. It’s a smart option for large expenses or debt consolidation.
Is a HELOC a second mortgage?
Yes, technically, if you have a first mortgage already. It’s a lien on your property, just like your primary mortgage.
What is the difference between a home equity loan and a HELOC?
A home equity loan gives you a lump sum, while a HELOC offers a revolving line of credit. Figure’s HELOC offers a 100% initial draw with the ability to repay at any time and re-draw during the draw period.1navigates to numbered disclaimer
Are student loans considered as debt when getting a HELOC?
Yes, lenders factor in student loans when calculating your debt-to-income ratio.
Is HELOC interest tax-deductible?
It can be if the funds are used for home improvements (consult your tax advisor).
Does a HELOC affect your credit score?
Yes, it can impact your score, both positively and negatively, depending on how you manage it.
