Home Equity Line of credit features and overview

Question

I have a very recent mortgage. I only have about 7% of equity on the home. I've made about 5 payments so far and everything is going smoothly.

Now I have a family emergency requiring me to borrow some money. I thought about using a service like Lendingclub or Prosper. But I've been thinking if it's a good idea to do a HELOC (Because I can have continuous access to the credit line, lower rates, ability to deduct taxes on interest paid etc).

So, I have a few questions about HELOC

• I have the mortgage from Lender A. Can I get a HELOC from Lender B?

• Do banks pull my credit to approve a HELOC account?

• How is it reported to the credit bureaus and how does it affect my credit (Let's say my limit is $30k and I use all of $30k)?

• Anything unique about it's tax deduction?

• Anything else to watch out for?

Thanks.

Answer 1

I have the mortgage from Lender A. Can I get a HELOC from Lender B?

Yes.

Do banks pull my credit to approve a HELOC account?

Yes.

How is it reported to the credit bureaus and how does it affect my credit (Let's say my limit is $30k and I use all of $30k)?

It is reported as HELOC and the current balance. Similar to credit cards (in fact, some banks report it exactly as credit cards).

Anything unique about it's tax deduction?

Same as mortgage, except that the limit is $100K unless used for home improvement.

Anything else to watch out for?

LTV - Loan to Value. This is the ratio of your overall home value to the indebtedness secured by the home.

Currently, your LTV is 93% (you have 7% equity). For HELOC, most banks require the LTV, including the HELOC, not to exceed 75%. So the chances you'll get a HELOC are pretty slim.