Use Home Equity to Establish Credit
A Home Equity Line of Credit (HELOC) is a type of second mortgage that is actually a revolving credit line similar to that of a credit card. Because HELOCs are secured by your home, they commonly offer high credit limits, lower interest rates and the interest is tax deductible.
- Tax deductible
- One set amount available to you
- Determine how much you need and when you need it
- Must meet the required credit ratings
- Must meet the required debt-to-income ratio
- Must have equity in the subject property
How HELOC Works
Lenders set the HELOC limits and then award the loan. Afterwards, the loan enters the draw period.
- The draw period can be a span for 5 to 20 years depending upon which program they fit into
- The borrower will receive a check book and a special credit card that is used for withdraws
- When the money is taken out the borrower will receive a monthly bill and must make a minimum payment (sometime interest only)
- When no money has been taken out there will be no money owed
At the end of the draw period which is usually 10-20 years, it will enter in a stage of the loan called “repayment period.” This is when the borrower cannot withdraw from the loan any longer and will receive a fixed payment schedule for repayment.