One of the issues that many homeowners are currently facing is the closure of Home Equity Lines of Credit, or Heloc’s. Over the past several years, Heloc’s have been very easy to get and very commonly used when some cash was needed. Many homeowners maintain a line of credit on their home as a sort of emergency fund, knowing that money was available should something drastic happen creating a need for funds quickly. Other people used money from Heloc’s to improve the value of their homes through improvements and renovations.

Unfortunately, many people treated their houses like giant ATM machines, tapping into the line of credit without much caution at all-not a huge problem when home values are increasing by 10-20% each year, but a major point of concern when home prices are falling and banks are struggling to stay in business. Now many people are finding that banks aren’t eager to renew their lines of credit and losing a Heloc without warning can put many people in quite a bind.

There are some things that you can do to help your chances of keeping your line of credit open and available.

First, you need to understand the value of your home, and realize that banks are likely to extend lines of credit based on 70-80% of the value of your home, compared to 100% a few years ago. Look at what houses are selling for in your neighborhood, and find comparable homes that have sold in the past few months. There are several websites that will help to estimate that value for you.

Second, pay down as much debt as you can! When a bank is looking at whether or not you are credit worthy, your debt-to-equity ratio is a key number in determining whether or not you are worth the risk. Keep your monthly obligations low if you want access to a HELOC.

Finally, be clear on the details of your current line of credit. Many borrowers don’t realize that a Heloc usually comes with an expiration date, and a bank can often cancel an existing line of credit at anytime, regardless of your credit score or history. If your line of credit is set to expire in the next 6 months, it’s not too early to begin talking to your lender about renewal. It will probably be easier to maintain your existing Heloc than to establish a new line down the road in an uncertain economic environment.

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Tags: heloc, home equity line of credit

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