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As the winter comes to an end and the spring season unfolds, many homeowners plan to take on home projects to improve or repair their homes — or simply ensure that the home works better for their needs. But while home renovations and repairs are a great way to ensure that you’re protecting your investment and boosting the equity in your home, they can also be costly. 

For example, the average bathroom remodel currently costs about $11,000 to complete. But depending on where you live, the size of your project, the materials and labor and other factors, the price for this project could range from $2,500 to $80,000 — and that price tag may be out of reach for your average homeowner.

The good news is that if you’re planning a home renovation for the coming months — or if you’re planning to pay down debt or make another large purchase — you don’t have to cover the costs in cash. A home equity line of credit (HELOC) can be a powerful tool in achieving these objectives, offering flexible borrowing against the equity built in your home. To make the most of this financial opportunity, though, it’s crucial to secure the best HELOC rate possible. Below, we’ll break down some tips to guide you through the process.

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7 tips for getting the best HELOC rates this spring

Getting the best HELOC rate possible can result in big savings on the money you borrow. As you search for a home equity line of credit, consider the following:

Keep an eye on your credit score and credit history

Before diving into the HELOC application process, it can be beneficial to take the time to review your credit score and history. Lenders use this information to assess your creditworthiness, which influences the interest rate you’ll be offered. 

If possible, aim for a credit score of 700 or higher to increase your chances of securing competitive rates. If your score is lower, consider taking steps to improve it, such as paying down outstanding debts and addressing any errors on your credit report.

Learn more about the best HELOC rates available to you today.

Compare offers from multiple lenders

Don’t settle for the first HELOC lender that crosses your path. Explore a variety of lender types, including traditional banks, credit unions and online lenders, as each may have its own set of terms, conditions and rates. 

And, be sure to compare a range of offers, looking at not just interest rates, but the fees, repayment terms and customer reviews for each option. Completing a thorough comparison of your lender options can help you identify the one that aligns best with your financial goals and offers the most favorable HELOC terms.

Understand the loan-to-value (LTV) ratio

The LTV ratio of your home plays a significant role in determining your HELOC rates. This ratio represents the percentage of your home’s appraised value that you can borrow against. 

To secure better rates on your HELOC, it can help to aim for a lower LTV ratio — which can be done by making extra mortgage payments, completing a new appraisal to assess the property appreciation in value or making home improvements — or a combination of the three.

Ensure that you have enough equity

One of the key factors influencing your eligibility for a HELOC — and the interest rates you’re offered — is the amount of equity in your home. Lenders typically require a minimum level of equity, often around 20%, to approve you for a HELOC. 

So, ensure that you have enough equity to meet the lender’s criteria — and, if possible, find ways to increase that equity to potentially qualify for more favorable rates. The process of increasing your equity is similar to lowering your LTV ratio. You can typically do this by paying down your mortgage or improving your home, which, in turn, can enhance your chances of securing the best HELOC terms.

Inquire about rate caps

When considering a HELOC, which comes with a variable interest rate, it’s essential to inquire about rate caps. Rate caps limit how much your interest rate can increase over a specific period, protecting you from drastic spikes in payments. 

Understanding the rate caps associated with a HELOC can provide you with peace of mind and financial stability, especially in a market where interest rates may fluctuate. And, choosing a HELOC with the right rate cap can also keep your future HELOC rate from being higher than you expected (or can afford).

Negotiate the terms and fees

Don’t be afraid to negotiate with lenders. While low interest rates are an important factor, be sure to also pay attention to the terms and fees associated with the HELOC. Some lenders may be open to waiving or reducing certain fees, such as application fees or closing costs. Negotiating these terms can result in substantial savings over the life of the loan.

Demonstrate a stable financial picture

Lenders typically prefer borrowers who demonstrate financial stability, so ensure your employment history is robust, you can showcase a steady income and keep your debt-to-income (DTI) ratio in check. Stability in these areas can improve your overall creditworthiness and enhance your chances of securing the best HELOC rates.

The bottom line

Securing the best HELOC rates this spring requires a combination of careful preparation, thorough research and effective negotiation. By understanding your financial position, exploring multiple lenders, looking for rate caps and paying attention to key factors like credit score, loan-to-value ratio and equity, you can unlock the full potential of a HELOC and embark on your financial journey with confidence.