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Your credit score is a significant factor in any investment. The definition of a “good” credit score varies from lender to lender. However, scores in the high 680s-700s are a standard benchmark for borrowers looking to buy a house.
Raising your credit score before applying for a first lien HELOC may increase your chances of pre-approval.
Purchasing a primary residence is an exciting investment, but it takes some smart financial steps to get there. If you’re wondering how to buy a house, you’re not alone in looking for ways to finance your purchase. In fact, 87% of homebuyers financed the purchase of their house in 2020. Using a first lien HELOC can help you manage the financial commitment. First, you’ll need to get approved. Here’s what the process looks like and what you can do to get started.
If you’re wondering how to buy a home with a first lien HELOC, it all starts with your home equity. A first lien HELOC offers flexible borrowing ability similar to a credit card. Both have credit limits, but a HELOC is based on how much your home is worth, or home equity. The amount also depends on each lender. Typically, lenders grant up to 80% of a borrower’s home equity. After determining your home equity, other factors based on this value should be determined. These include your loan-to-value ratio, credit score, and debt-to-income-ratio.
Lenders also calculate your debt-to-income (DTI) ratio, which also estimates your borrowing risk. It also shows how much borrowers can manage along with their other outstanding loans.
As a rule of thumb, a post it’s good to keep your debt-to-income ratio under 36%. High mortgages that occupy 28% of your debt can also skew this ratio.
Besides your home loans, your debt-to-income ratio includes overall loans. These loans may be credit cards, auto, insurance, and student loans. Your overall debt also includes other forms of debt besides loans such as alimony or child support.
If you need to raise your credit score, make sure to borrow in proportion to your credit limit. According to the Consumer Financial Protection Bureau, you should borrow no more than 30% of your total credit limit.
Credit scores are composed of overall debt payment history, the length of that history, and outstanding debt. This means that making timely and consistent payments can help you maintain a positive score.
Sign up on FirstLienHeloc.com to get connected with a licensed lender who can deliver an all-in-one 1st Lien HELOC. They’ll walk you through the application process and help outline your budget, your numbers, and exactly how much you can save by replacing your mortgage.
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