Preparing for a First Lien HELOC: Steps to Boost Your Approval Odds

If you’re a homeowner looking to pay off your home much faster, save money in interest costs, or leverage your home’s equity, a First Lien HELOC or home equity line of credit could be a great option for you. 

But before you apply, it’s important to take proactive steps to increase your chances of approval. 

By improving your credit score, managing your debt, and strengthening your overall financial standing, you can demonstrate your creditworthiness and boost your odds of getting approved for a First Lien HELOC.

Here are some essential tips for preparing for a First Lien HELOC:

Improve Your Credit Score

Your credit score is a crucial factor in determining your eligibility for a First Lien HELOC. A higher credit score will not only increase your chances of getting approved but can also ensure that you have access to the best products, features and rates.

Here are some tips to improve your credit score:

  • Keep your credit utilization low with your Credit Cards: This is the percentage of your available credit that you are currently using. To improve your score, aim to keep your credit utilization below 20%, mainly for revolving accounts like credit cards.
  • You can either do this by: 
    (a)  paying the balance down, or by
    (b) increasing the credit limit (without increasing your balance)
  • Both of these will decrease your credit utilization.
  • A third strategy is a bit more involved, however can be effective if the numbers allow for it to work.  This strategy involves transferring debt from a card with a high credit utilization to a card with a low credit utilization, with the intent of getting both cards below the 20% mark.
  • The key is to get as many cards below 20% utilization as possible.  This strategy won’t be an option for everyone, but if you’ve got a card that’s maxed out, and others that have $0 balances, you could simply transfer some of the debt from one card to the others to get it below 20% utilization, but you have to ensure that the others don’t go above the 20% mark.

Don’t close old credit accounts: Closing old credit accounts can hurt your credit score, as it can shorten the length of your credit history. The longer your credit history, the better your score. So, make sure to keep old accounts open, even if you’re not actively using them.

  • Limit new credit applications: Applying for multiple credit accounts within a short period of time can also hurt your credit score. Only apply for new credit when you really need it.
  • Diversify your credit: Having a mix of different types of credit accounts, such as credit cards, loans, and mortgages, can actually help improve your credit score. It shows that you can handle different types of credit responsibly.
  • Use automatic payments: Setting up automatic payments for your bills can help ensure that you never miss a payment, which is crucial for maintaining a good credit score.

Remember, improving your credit score is a gradual process, and it takes time to see results. However, by consistently practicing good credit habits, you can gradually improve your score and increase your chances of getting approved for a First Lien HELOC.

Debt Management for HELOC

When applying for a HELOC, many lenders prefer to see a debt-to-income ratio (DTI) of 40% or less, including your mortgage. This means that your total monthly debt payments, including your projected mortgage payment, should not exceed 40% of your gross monthly income.  Having a DTI within this range demonstrates to lenders that you have a manageable level of debt compared to your income and are more likely to have the financial capacity to repay the HELOC. 

However, it’s important to note that specific DTI requirements may vary among lenders. Some lenders may be more flexible, while others may have stricter guidelines.  For instance, one of our bank partners can go to a 45% max DTI (this is great), where other lenders can only go to 38% DTI. 

To determine your DTI, add up all your monthly debt payments, including credit card bills, student loans, car loans, and your mortgage payment. Then, divide that total by your gross monthly income and multiply it by 100 to get the percentage.  

For example, if your total monthly debt payments, including your mortgage, amount to $2,000, and your gross monthly income is $5,000, your DTI would be 40% ($2,000 divided by $5,000, multiplied by 100).

Doing this calculation on your own will give you a general Debt To Income ratio, however keep in mind that when lenders calculate your DTI, they will likely use different numbers than the ones you used.  This just means that the DTI you calculated should serve as a general reference point for your Debt-to-income.

It’s essential to keep your DTI in mind when managing your finances and considering a HELOC. If your DTI exceeds the preferred threshold, you may need to focus on reducing your debt or increasing your income to improve your financial standing before applying for a HELOC. 

Here are some actionable steps you can take to improve your DTI:

  • Pay down your debt: Start by paying off any outstanding debts as quickly as possible. This will help lower your DTI and show lenders that you are managing your debt responsibly.
  • Consolidate high-interest debt: Consider consolidating high-interest, revolving debt into a lower-interest installment loan. This will not only reduce your monthly payments but also lower your overall interest cost, improve your DTI, and will likely improve your credit score.
  • Consolidate debt into your First Lien HELOC at closing: This strategy involves using the available equity in your home to pay off the existing debt that you have.  This will lower the overall monthly liability applied to your DTI, and will improve your chances of getting qualified.  This step is accomplished once you have an application with a lender, and can be an extremely effective way to improve your Debt-to-income ratio.

Each of these steps can be effective ways to reduce your DTI,  which can help boost your chances of getting approved for a First Lien HELOC.

Financial Preparation for HELOC

When preparing for a First Lien HELOC, it’s important to take into account your overall financial standing, including your income, employment history, and assets. Lenders will evaluate these factors to determine your eligibility for a home equity line of credit.

If you’re a W2 employee, having control over your base income can be difficult, however if you are able to negotiate a raise, the increase in base income would improve your chances of approval.

For self-employed borrowers, having all the necessary documentation to prove income is crucial. This may include tax returns, K-1s, bank statements, profit and loss statements, or other financial documents. Keeping your financial records organized and up-to-date can help streamline the application process and increase your odds of approval.

By taking proactive steps to strengthen your financial standing, you can demonstrate to lenders that you are a responsible borrower and increase your chances of getting approved for a First Lien HELOC.

First Lien HELOC Preparation

Gather Necessary Documents

When applying for a First Lien HELOC, you will need to provide the lender with several documents that will help them evaluate your financial standing and determine your eligibility.  These documents include your tax returns, pay stubs, bank statements, and any other financial documents the lender may require. 

Gathering these documents in advance will help streamline the application process and improve your odds of approval. Start by making a list of all the documents you need and then gather them together in one place. This will make it easier to keep track of what you have and what you still need to obtain.

To gather your tax returns, check your records to ensure you have copies of your federal and state tax returns for the past two years. If you can’t find them you can reach out to your accountant or CPA and ask them for an electronic copy.  If you don’t have a CPA and still can’t find your full returns, you can order a copy of them from the IRS, although this option will come with a small fee.  If you are self-employed, you may also need to provide additional documents, such as profit and loss statements or business tax returns.

Your pay stubs will provide the lender with information on your current income, so make sure you have copies of your most recent pay stubs.

If you receive income from other sources, such as rental properties or investments, you will also need to provide documentation to verify that income. For instance, with a rental property, you’ll need an up-to-date lease agreement, mortgage statement, and the homeowners insurance declaration page. 

Bank statements will provide the lender with a snapshot of your financial standing, including your income, expenses, and overall financial health, so be prepared to provide statements for all of your accounts, including checking, savings, and investment accounts. 

In addition to these documents, the lender may also require additional documentation, such as proof of insurance, a copy of your mortgage statement, or any other documentation relevant to your financial situation. 

When you talk with a lender, be sure to ask them what documents they require in advance so you can gather everything you need.  By gathering all the necessary documentation in advance, you can demonstrate to the lender that you are organized and prepared, which can help improve your odds of approval.  It will also make the application process faster and smoother, allowing you to begin paying down the balance on your home quickly.  

Research HELOC Eligibility Requirements

When considering a First Lien HELOC, it’s important to research the eligibility requirements of different lenders. Each lender will have their own specific requirements, such as a minimum credit score, maximum debt-to-income ratio, or minimum home equity percentage.

By understanding these requirements in advance, you can determine if you are eligible for a First Lien HELOC and what steps you need to take to meet the criteria. The best way to find this information is to either visit the lender’s website, or by speaking with a representative.  

By taking the time to research and prepare, you can increase your chances of approval and secure the financing you need to achieve your financial goals.

HELOC Application Process

Work with a Reputable Lender

Working with a reputable lender is an essential part of the First Lien HELOC process. A reputable lender can offer you a competitive interest rate and loan terms, along with transparent fees and charges.  When choosing a lender, look for one that has a good reputation and a proven track record of providing excellent customer service. 

One way to find a reputable lender is to ask for referrals from friends or family members who have recently obtained a First Lien HELOC. However, it may be difficult to find a family member who has worked with a lender specializing in First Lien HELOCs.  

That being said, the absolute best way to find a reputable First Lien HELOC lender is to use us!! has fully vetted our lender partners specifically for their expert knowledge on the subject, their superior product offerings, and their excellent customer service.    

In summary, working with a reputable lender can help ensure that you get the best education, and the best First Lien HELOC for you.   

HELOC Eligibility and Credit Requirements

It’s crucial to understand the eligibility requirements for a HELOC and the credit score required to obtain a First Lien HELOC. A credit score of at least 680 is usually required, but some lenders may require a higher score. 

Your payment history, credit utilization ratio, and outstanding debts such as personal loans, student loans, and monthly debts will also impact your chances of getting approved. 

However, you can take proactive steps to increase your chances of approval, such as improving your credit score, managing your debt, and strengthening your overall financial standing. 

Remember to research HELOC eligibility requirements, gather necessary documents, and work with a reputable lender to ensure a smooth and successful application process. 

With the right approach, you can unlock the potential of your home’s equity and secure the financing you need to achieve your financial goals.