Question 1

What is the difference between a home equity loan and a HELOC?

Accepted Answer

A home equity loan gives you a lump sum at a fixed interest rate, repaid over a set term (5-20 years). A HELOC is a revolving credit line with a variable rate -- you draw funds as needed during the draw period (typically 10 years) and repay during the repayment period. Home equity loans are better for one-time expenses; HELOCs work well for ongoing projects.

Question 2

How much can I borrow with a home equity loan?

Accepted Answer

Most lenders allow you to borrow up to 80-85% of your home value minus your existing mortgage balance. For example, if your home is worth $400,000 and you owe $250,000, you could potentially borrow up to $90,000 (85% of $400,000 = $340,000 minus $250,000 owed).

Question 3

Is home equity loan interest tax deductible?

Accepted Answer

Home equity loan interest may be tax deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. Interest used for other purposes (debt consolidation, vacations) is generally not deductible. Consult a tax advisor for your specific situation.

Question 4

What credit score do I need for a home equity loan?

Accepted Answer

Most lenders require a minimum credit score of 620-680 for a home equity loan, with the best rates available to borrowers with scores above 740. You also typically need at least 15-20% equity in your home and a debt-to-income ratio below 43%.

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