What Do I Need to Open a Home Equity Line of Credit (HELOC)?

Home equity is one of the most valuable resources you have as a homeowner. If you’ve decided to take advantage of your equity and open a home equity line of credit (HELOC), there are a few steps you should follow in the application process. This includes submitting documents like proof of income, employment verification, property information, and more.

In this blog, we'll break down the entire process of applying for a HELOC, as well as tips you can follow and how to open one with American Heritage Credit Union.

Reviewing Your Home Equity

Before you can even start the HELOC application process, you’ll want to be sure that you have equity built up in your home. Equity is the portion of your home that you own (what you have paid off already in your mortgage). It’s a powerful tool that you can tap into for loans, lines of credit, and more.

You can determine exactly how much equity you have in your home by subtracting your home’s current value against what you still owe towards your mortgage. Say your home's current value is $350,000 and you still owe $150,000 towards your mortgage. You would subtract these two values, leading to you having $200,000 equity in your home. From here, your lender will allow you to borrow a percentage of that home equity through a loan or line of credit.

Next Steps for a HELOC

Once you've verified the amount of equity in your home and opt to move forward in applying for a HELOC, you will need to gather some documentation. This includes government-issued forms of ID, property information, employment details, and more. We'll break down each section in more detail below.

Personal Information

When you’re ready to apply for a HELOC, you’ll need to share some personal information with your lender. A government-issued ID, like a driver’s license or passport, should work for several of the details you’ll need to supply, like your name and date of birth. It’s also a good idea to have your Social Security card handy, as you’ll need to share your Social Security number. You’ll also need to share a phone number with your lender.

Employment History

Next, you’ll need to share some employment details with your lender. Be prepared to share details like your job title and contact information for your employer. You can verify your employment by showing documents like:

• Recent paystubs from your employer
• Tax returns
• 1099 forms (for contractors or freelancers)

• Profit and loss statements (if you're self-employed)

Many employers often have a dedicated phone number or email that lenders can contact to check for employment verification. Contact your human resources department to see if they have a dedicated number or email.

Proof of Income

When applying for a HELOC (or other lines of credit or loans), you need to show proof of your income. For most, this means needing to share your W-2 statements with your lender. You can also share two of your most recent paystubs.

For those who are retired, you can share your recent Social Security or pension statements with your lender. You also may need to share any award letters that you’ve received.

If you're self-employed, you can supply two years' worth of your full tax returns. Contractors and freelancers can put forth their recent 1099 forms.

Financial Information

Before you’re approved for a HELOC, your lender will want to get a full picture of your financial history. They’ll want to know if you have any other outstanding loans, your payment history, and your credit history.

Some of the documents you'll likely need to provide your lender include:

• Bank statements

• Loan records and documentation

By reviewing these items, your lender will get a sense of your debt-to-income ratio. This is the portion of monthly debts and obligations you have relative to your monthly net income (what you earn after taxes and other deductions). While every lender is different when it comes to approval, they will want to see a debt-to-income ratio that is manageable.

Property Information

From here, it’s onto the details of your property! Your lender will need to see several documents that relate directly to your home (or other property) to establish and approve you for a HELOC.

The property documents you'll need to show your lender when applying for a HELOC include:

• A copy of your homeowner's insurance policy
• Recent mortgage statements
• Property tax statements
• Your real estate tax amount
• Your homeowner's insurance premium amount
• The estimated value of your property

• The declarations page(s) from your homeowner's insurance policy

Additionally, you'll need to disclose any liens (a legal claim to your property by someone else due to debt) that you may have on your home. Your lender will also need to know if you maintain any other mortgages, which could be for a rental home, a vacation home, etc.

You're Ready to Apply!

Once you have all your documents gathered, congratulations! You’re ready to apply for a HELOC. Most lenders will offer you the option to apply in a physical location (primarily for financial institutions like credit unions or banks) or online. Remember to keep all your documentation together and organized. It’s also a good idea to bring along any questions you may have about HELOCs if you’ll be applying in person.

To learn more about HELOCs and how they work, click here.

¹Sample Platinum Fixed-Rate HELOC (3DP/5A) Payment Example: $19.21 for every $1,000 borrowed at 5.74% APR at 60 months (Up to 80% LTV). Minimum monthly payment amount is $20. Borrower has a 36-month draw period from loan opening date to advance funds from line of credit. Homeowners Insurance and Flood Insurance, if applicable, is required. $150.00 commitment fee may apply for certain non-owner-occupied properties. Mortgage recording fees may apply in counties located outside the Tri-State Area (PA, NJ, and DE). The mortgage recording fee is assessed by certain counties and is not a fee assessed by American Heritage Credit Union.