Over 100,000 HELOC borrowers have received notice that their line of credit is now frozen or canceled. Lenders are increasingly wary of offering high HELOC credit limits in the declining market. However, it is still possible to take out a HELOC if you meet more stringent qualifications.

How to Qualify: In order to qualify for a HELOC in today’s market, you’ll need to prove yourself with a high credit score (above 620), stable employment, and a low debt-to-income ratio. Most importantly, you’ll need to have a significant amount of equity in your home. Gone are the days when lenders would set their HELOC credit limits at 90-100% of the home’s equity. Now, some lenders are offering around 65-75%.

If you live in an area that has not seen a severe decline in home prices, your chances of qualifying are increased. In many cities, home prices more than doubled during the boom. Even if your home is worth less now than it was two years ago, you may still have thousands in equity.

Borrower Beware: If you do qualify for a HELOC, read over the terms and conditions carefully. Some lenders offer borrower-friendly terms that limit the possibility of a HELOC freeze. If your lender does not offer such a clause, use your HELOC wisely. If you have a large home remodeling project, for example, you may want to draw money from the HELOC at the beginning of the project rather making small payments for supplies and labor. Although you will pay more in interest, you won’t find yourself with a HELOC freeze letter and a pile of unpaid bills.

See Also: HELOC Lending Standards Tighten

Tags | Heloc, heloc freeze, home equity loan, lenders, loans