Some New “Rules” Banks Are “Enforcing” If You Want A Home Equity Line Of Credit Or Mortgage

The days when a financial advisor counseled a homeowner to keep a $50,000 home equity line of credit (Heloc) open as a financial cushion, are over. As the economy, and subsequently the housing market, have declined lenders are making it much more difficult for homeowners to qualify. Rest assured if you do, you will pay much more interest than you would have even just a year ago. In most states, the following is what you will be expected to document for most lenders to qualify you for a Heloc:

• A credit score of at least 720
• A stable income that can be documented
• Proof that you have more than 20% equity in your home
• A healthy combined debt-to-income ratio

The following things are now generally required to qualify for a traditional first mortgage:

• The monthly payment (including interest, tax, insurance and common fees) must be 31% or less of your gross monthly income
• Proof of a healthy combined debt-to income ratio (this includes credit card payments and car loans). If this monthly debt is over 38% of your monthly income, you will not be eligible.