Due to recent federal cuts, HELOC interest rates are dropping. Currently the average HELOC rate is 7.74% and the average fixed-rate home equity loan is 8.07%.

According to the March edition of Kiplinger’s Personal Finance,  these rate cuts come at a time when HELOC lending standards are tightening - making it more difficult for borrowers to take out a loan.

Here are some of new lending requirements:

No more automated appraisals.  Lenders are wary about appraising properties for more than they’re worth; in this declining market most lenders require an appraiser to do a physical property walk through before awarding a HELOC.

Decreased loan-to-value ratio. Gone are the days when borrowers could take out 100% of their equity in a HELOC. Now, it’s practically impossible to get a HELOC for over 90% of your equity’s value. HELOCs offering just 65% of the equity’s value are commonplace.

Good credit becomes necessary. Lenders are becoming less willing to work with bad credit customers. In order to qualify for a traditional HELOC, most borrowers need a credit score above 680.

Check out the full Kiplinger article for more details. See also: How to Get the Best HELOC Rates and Terms.

Tags | finance, Heloc, home equity loan, loans, rates