When Maryland mortgage borrowers build sufficient home equity, they may be eligible for a cash-out loan through a home equity line of credit or HELOC. As a line of credit, HELOC loans are similar to credit cards in flexibility and convenience. They can be used for various purposes, such as investment and emergency expenses, and have revolving credit.
Also, homeowners can use what they need and enjoy convenient access through checks, online transfers, and debit cards. But how flexible are the credit score requirements for HELOC approval, and how does this affect home equity loan rates in Maryland?
What Are the Eligibility Requirements for a HELOC Loan in Maryland?
Besides equity requirements, Maryland HELOC loan lenders have other eligibility criteria to determine eligibility, the same as other mortgage loans. A credit score is usually assessed alongside the loan-to-value ratio and debt-to-income ratio.
This blog will focus on the credit score requirements for HELOC approval in Maryland, their impact on loan terms, and strategies to improve credit scores.
Credit Score Requirements for HELOC Approval in Maryland
Maryland lenders have different credit score requirements for HELOC approval. Generally, borrowers must have a score of over 680 to qualify for a HELOC loan. This indicates good credit and demonstrates the borrower's ability to manage debt responsibly. A credit score above 700 will considerably increase the chances of securing a HELOC loan.
Can I Get a HELOC With Bad Credit?
It will depend. Borrowers whose FICO score is between 620 and 700 could qualify with some lenders, but they may need to make up for the lower score by having more equity and a high income. While lenders usually ask for 15% to 20% equity, borrowers with credit scores between 620 and 700 may need over 20%.
Impact of Credit Scores on HELOC Terms in Maryland
Credit scores affect eligibility and the terms of a HELOC loan. If borrowers qualify for a HELOC loan with lower credit scores, they may be subject to higher home equity loan rates in Maryland.
Another important point to note is that HELOC loans have variable interest rates. As such, these borrowers may face even higher rates if the market changes. Conversely, an excellent credit score borrower will receive lower interest rates.
Other repayment terms are also contingent on credit score. For instance, a borrower with a lower credit score may have a shorter draw period — the time during which they can tap into their credit line up to their approved credit limit.
They may also have a shorter repayment period — time to repay the loan after the draw period ends. In addition, they may get a lower credit limit. This is because lenders consider borrowers with excellent credit scores less risky and more likely to repay the loan in full and on time.
Strategies to Improve Credit Scores for HELOC Approval
As a homeowner, you can improve your credit score for better HELOC loan terms by:
- Reviewing your credit report: Get a free credit report from any of the three major credit reporting bureaus and review it for fraudulent accounts. If you discover any inaccuracies, report them to the credit bureau to have them corrected.
- Settling outstanding debts: A credit report reflects your loan borrowing and payment history. Therefore, work on reducing or paying off outstanding debts to reduce your credit utilization ratio — the total credit amount you currently use compared to your total available credit. Prioritize settling high-balance accounts for a better credit utilization ratio.
- Requesting a credit line increase: Request your credit card issuer to increase your credit limit. If you don't use the increased limit, this will improve the credit utilization ratio. An ideal credit utilization ratio is usually below 30%.
- Avoiding opening new credit accounts: A long credit history demonstrates experience managing credit over a long period, usually indicative of responsible financial behavior. Opening many credit accounts within a short period can lower your average credit age, thus reducing your credit score.
The Importance of Partnering With a Competitive Lender
It's imperative for Maryland homeowners to partner with a lender offering competitive HELOC loan terms as it will allow them to tap into their home's equity without taking on excessive financial burden.
As such, look for a lender that provides flexible credit score requirements. Their interest rates and fees should also be fair and transparent, and their other eligibility requirements should be reasonable to improve the chances of approval.
Enjoy Favorable Home Equity Loan Rates in Maryland With Woodsboro Bank
Woodsboro Bank's community banking experience avails the exceptional service and flexible mortgage solutions that Maryland homeowners deserve. Their HELOC loans attract competitive rates and fees, allowing borrowers to consolidate their debts, advance their entrepreneurial goals, or finance unexpected expenses. Contact Woodsboro Bank today for more information on their HELOC loan options.