The Coronavirus quarantine has you thinking about making upgrades to your home, and that has you thinking about tapping your equity to take out as a home equity loan (HELOC), right? If so, you’re part of a real estate trend that’s sweeping the nation right now.
A new report from LendingTree found that, “While the total number of home equity loan applications has fallen since January…those who do apply for a home equity loan are more likely to use it to pay for home improvements than they might’ve been at the start of the year.”
Across the nation’s 50 largest metro areas, “An average of 45.9% of home equity loans are being used to make home improvements,” they said. That’s up from 37.3% in January. “Milwaukee, Louisville, and Columbus are the metros with the largest share of home equity loans meant for home improvements.”
What you need to know about qualifying
Even if you have plenty of equity in your home and decent credit, it might not be so easy to qualify for that HELOC. Some lenders have increased their qualification requirements while others have halted their HELOCs for the time being.
“Chase, for instance, announced last month that it would be freezing new HELOC applications and requiring almost all new mortgage applicants to have 20 percent down and at least a 700 FICO credit score,” said Bankrate. “Bank of America also raised its credit score requirements for home equity products from 660 to 720.” As of May 1, Wells Fargo has stopped accepting HELOC applications altogether.
You can still find a HELOC with several other lenders. NerdWallet has an updated list organized by interest rate and max loan to value (LTV).
If a HELOC isn’t going to work for you, there are other options.
“In press releases announcing the freeze on new HELOCs, both Chase and Wells Fargo mentioned a cash-out refinance as a possible alternative option,” said Bankrate. “In a cash-out refinance, you will receive a lump-sum payment for a certain percentage of your home equity.”
A personal loan might also be an option, although “personal loans generally have higher interest rates than home loans,” said Investopedia. “Bankrate reported that personal loan rates ranged from 5% to 36% as of May 2020.”