HELOC Loan-to-Value Ratio Requirements Get Tough
Posted on 13 June 2008 by Jamie Beck
During the housing boom, HELOC lenders regularly offered home equity lines of credit at 90% or even 95% of the borrower’s home value.
As home values declined, these loans became increasingly risky for banks. If a borrower has a 95% loan-to-value HELOC and his home declines 6%, the borrower is unable to pay back the loan simply from selling the property.
To combat this problem, most lenders have instituted tougher loan-to-value requirements for new HELOCs. Money 911 reports:
“Before you borrow, you need to be sure that your home still has the equity that you think it has and that a lender is willing to let you take out a HELOC — a home equity line of credit — which is a better option than a home equity loan. Many lenders won’t let you go past 85 percent LTV with a HELOC. Some are as low as 60 percent LTV. It’s harder to borrow against your home today than it was two years ago.”
If you’re planning on taking out a HELOC, make sure you have substantial equity in your home. Gone are the days when borrowers could take out a home equity loan right after their purchase loan left the closing table.
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