Home Equity

While it is possible to get a HELOC or a home equity loan without showing your tax return or income verification, it is usually more expensive. Low- or no-documentation loans are risky, and finding a HELOC or home equity loan lender to approve your loan without documentation may be tricky and put you at risk of becoming a victim of a lending scam.

To figure out how much equity you have in your home, calculate the difference between your home’s current market value and the sum of outstanding debts—mainly, your primary mortgage. In other words, if your home is worth $250,000 and you owe $150,000 on your mortgage, subtract that remaining loan balance from the home's value: Your home equity is $100,000.

Homeowners who would like either a HELOC or a home equity loan generally need the following: More than 20% home equity; a credit score of at least 600; and a stable income history for at least two years. It’s possible to get approved by going through lenders that specialize in high-risk borrowers, but expect to pay much higher interest rates. 

You’re taking a risk using a HELOC on your primary residence in order to make a down payment on a second property. Make sure you have the monthly cash flow to pay mortgages on both properties in addition to your HELOC. If you do have the funds, a HELOC might be a good way to get cash for a down payment. 

You can generally borrow as much as 85% of your home equity. However, you’ll still have to come up with several thousand dollars to meet closing costs, so you won’t walk away from the deal with that full 85%.

HELOCs generally have variable interest rates, just like credit cards, but the rates tend to be lower because the collateral provides a cushion to the lender should the borrower default. A HELOC with a fixed rate will often have a variable interest rate during the initial draw period before converting to a fixed interest rate for the repayment period.