Personal Finance Insider’s experts have answered readers’ home-buying questions and provided unbiased product reviews, including an assessment of mortgages. While they may receive commissions from partners, their opinions remain independent.
A home equity line of credit (HELOC) is a second mortgage that can be beneficial for homeowners seeking funds for home improvement projects, debt consolidation, or other financial goals. Similar to a credit card, a HELOC allows homeowners to borrow money using their home’s equity.
HELOC lenders typically prefer a combined loan-to-value ratio (CLTV) between 80% and 90%, although this can vary. The CLTV includes all loans on the property, including first and second mortgages. The loan-to-value ratio (LTV) compares the mortgage amount to the home’s value.
To identify the best HELOC lenders, Personal Finance Insider considered affordability features such as customer discounts and no fees. The preferred lenders also offer higher CLTVs, making them accessible to homeowners with limited equity.
Bank of America is a solid option for borrowers, offering a max CLTV on the more affordable end, no fees, and state-specific rate exploration on its website. New American Funding is suitable for those with little equity or lower credit scores, as it offers HELOCs to borrowers with scores as low as 620. Navy Federal Credit Union charges no lender fees, annual fees, or inactivity fees, making it an affordable choice. Flagstar Bank is ideal for borrowers seeking to access a significant amount of equity, although it charges an annual fee and has a higher maximum APR. Citizens Bank offers both traditional and GoalBuilder HELOCs, with the latter accommodating smaller loan amounts. Alliant Credit Union is an affordable option, charging no lender fees at closing and no annual fee for its standard HELOC.
It is crucial to consider individual needs and obtain quotes from multiple lenders to find the best HELOC deal. HELOCs typically require a higher credit score than the initial mortgage, with some lenders accepting scores as low as 620. Interest on a HELOC used for home-related purposes may be tax-deductible, but personal expenses are not eligible for deductions.
While some banks stopped offering HELOCs during the COVID-19 pandemic, many lenders on the list continue to provide HELOCs to qualified borrowers. HELOC rates are currently relatively high, necessitating thorough comparison shopping with different lenders based on the index used and individual credit profile.
The lender that provided the first mortgage may be a suitable option for a HELOC, but it is essential to obtain quotes from multiple lenders to secure the best deal. HELOC features vary among lenders, so borrowers should consider their specific needs.
HELOCs can be risky since they use the home as collateral. Homeowners should only consider a HELOC if it improves their overall financial situation, such as consolidating high-interest debt or funding value-boosting home improvements.
Bank of America is an overall solid option, offering a max CLTV on the more affordable end, no fees, and the ability to explore rates by state. New American Funding is suitable for borrowers with little equity or lower credit scores. Navy Federal Credit Union charges no lender fees, annual fees, or inactivity fees. Flagstar Bank is a good choice for accessing a significant amount of equity, although it charges an annual fee. Citizens Bank offers both traditional and GoalBuilder HELOCs, while Alliant Credit Union is an affordable option.
In conclusion, finding the best HELOC lender depends on individual needs and the most favorable deal. Thoroughly researching and comparing lenders is crucial to secure the most suitable HELOC.