a guide to getting the best home equity line of credit in Cincinnati

Turn your home’s equity into a useful line of credit

For homeowners looking for access to some extra cash, a home equity line of credit, or HELOC, is often an attractive choice. A HELOC functions much like a credit card: A lender extends a credit line, which you can use to renovate your home, make a large purchase, or even take a far-flung vacation. 

Consider the following steps to getting a HELOC:

Calculate your equity 

You’ll generally need to have accumulated 20% or more equity in your home to qualify for a HELOC. In other words, what you still owe on your mortgage must be 80% or less of your home’s current market value. The average price of a home in Cincinnati these days is around $240,000.¹ To qualify for a HELOC on that “average” home, you’d therefore have to have a mortgage balance of less than $192,000. 

Look at all aspects of your financial profile

Unfortunately, having equity in a home isn’t always enough to qualify for a HELOC. You’ll also need to demonstrate a low debt-to-income ratio, which is how lenders compare the amount of debt you already have to your ability to pay it off based on your income. What counts as low varies by lender, but typically ranges from 33% or lower for some lenders to as high as 50% and below for others. And you’ll generally need a credit score of at least 660, though that threshold may be higher or lower, depending on your lender and situation.² These factors, plus the amount of equity you have in your home, will determine how much credit lenders are willing to offer you. 

Shop around 

Even though you’re borrowing against your home with a HELOC, you don’t have to use the same lender you used when you took out your mortgage. Take the time to meet with multiple lenders around the city and find out what they can offer. Every bank has different standards for how much money you can take out in a mortgage loan compared to the assessed value of the house, also known as the loan-to-value ratio. So, the amount you’re offered may vary by lender. Carefully consider how much you want to borrow and make sure your lender can meet your needs. 

Ask questions 

The terms of HELOCs can vary quite a bit. Make sure you ask the following when considering any HELOC:

• How can you access the funds? Your lender may provide you with a debit card, transfer funds directly to your regular checking account, or require that you visit a branch to make withdrawals in person. If you plan to draw on the funds regularly, you’ll want a convenient option that doesn’t require frequent trips across town. Likewise, you’ll want a convenient way to make payments when that time comes around. 
• When will you be able to access funds? Not all lenders move at the same pace. Some banks can get your loan closed more quickly than others. If you need funds right away, be sure to ask the lender what kind of timeline they offer. 
• How is repayment structured? Some HELOCs offer interest-only payments for a specific term, followed by a large balloon payment at the end of the loan term. Others may charge penalties if you close the account prematurely. Match your needs with a structure that makes sense for you.
• What is the interest rate?³ Interest rates on HELOCs typically adjust with the prime rate—an industry-wide rate influenced by multiple factors. Many HELOCs start out with a low promotional rate that can rise significantly once the introductory period is over. Make sure you know how much you could ultimately be charged so you’re not drawn in by low introductory rates.
• What are the fees and closing costs? Make sure you understand how much a HELOC will cost you beyond the interest rate. There may be application fees, origination fees, early termination fees, lock fees, and more. Be sure you’re clear on each of these to avoid unpleasant surprises down the road. 
• Do you have a trusted advisor? Getting the input of a trusted advisor can be priceless. They can recommend tweaks to your HELOC request that may result in better terms. For example, requesting an increased line of credit can sometimes result in a better interest rate. They may be able to help you decide if a HELOC is the best option for your needs. 

If there is anything you don’t understand about a loan’s terms, always ask your loan officer to clarify. Then you can move ahead confidently, with an extra source of financing for your goals.

If you're interested in a HELOC, learn more about First Financial's options.