Loan options

Home Equity Line of Credit (HELOC) in Michigan

A home equity line of credit (HELOC) lets you borrow against your home’s equity without touching your first mortgage. We have in-house HELOC options. For a HELOC outside them, we place your loan with one of our lending partners; the partner is the lender. On our partner programs, you can qualify with a credit score from 640, and your score sets how much you can borrow: the higher the score, the more of your home’s value the first mortgage and the line together can reach. On most of them you draw at least 75% of the line at closing.

What it takes to qualify

The figures in this section come from our current partner programs. Our in-house HELOC options have their own guidelines, and we’ll tell you which one fits your file.

The credit score sets the combined loan-to-value (CLTV) limit: your first-mortgage balance plus the full HELOC line, divided by the home’s value. These are the highest limits available across our current partner programs for a primary residence:

Credit score	Highest combined loan-to-value
640 to 659	70%
660 to 679	80%
680 and above	90%

Not every partner goes that high at every tier. A larger line, a second home or investment property, or a co-borrower who won’t live in the home can bring the limit down. The rest of the file:

• Debt-to-income: up to 45% to 50%, depending on the lender and your score. Expect to be qualified as if the full line were borrowed, at a stressed rate set higher than today’s as a cushion, not on what you plan to draw.
• Income: fully documented. Pay stubs and W-2s, or tax returns if you’re self-employed. Bank-statement income doesn’t qualify on these HELOCs; if that’s how your income shows, ask about bank statement loans.
• Property: one to four units, condos and townhomes. Investment properties need a score of 660 or higher, and second homes often need more than 640. Both can qualify at lower limits. Manufactured homes qualify only on select programs.
• Line size: minimums run from $25,000 to $50,000 depending on the lender.
• First draw: at least 75% of the line at closing on most of our partner programs, so it works less like a standby line than the name suggests.

Your rate, fees and payment terms come from the lender on your plan: us, on our in-house HELOC options, or the partner, on a loan we place with one. Federal law requires that lender to give you its HELOC disclosures, including the annual percentage rate, fees and payment terms, before you open the line. We’ll walk you through them line by line.

How HELOCs work in general

This section is general education about HELOCs as a product type, based on the Consumer Financial Protection Bureau’s booklet What You Should Know About Home Equity Lines of Credit. It is not the terms of any one lender’s plan; your own lender’s disclosures set those.

• Two stages. A HELOC has a borrowing stage, often called the draw period, when you can borrow, repay and borrow again, and then a repayment stage, when the line closes to new borrowing and you pay down what you owe.
• The payment can change between them. On some HELOCs the minimum payment during the borrowing stage can be interest only, which does nothing to reduce the balance. When the repayment stage starts, the payment has to cover principal too, so it can be much higher. Some plans instead end with the whole remaining balance due at once, called a balloon payment; if you can’t pay or refinance it, you could lose your home.
• Variable rates. Most HELOC rates are variable: an index, such as the U.S. prime rate, plus a margin. Prime usually moves when the Federal Reserve changes its federal funds target, so the payment can change even if you don’t borrow more. Some lenders let you convert part of the balance to a fixed rate, usually a higher one, in exchange for a predictable payment on that part.
• Plan for a higher rate. Before you commit to any HELOC, ask the lender how the minimum payment is figured in each stage, what it would be at a higher rate, and what it becomes when the borrowing stage ends.
• Cost to open. A HELOC usually costs less to open than a refinance; the CFPB notes a cash-out refinance’s closing costs are generally higher. Ask each lender for its appraisal, application and closing costs, and any annual, inactivity or early-closure fee, and compare them in writing.
• Selling the home. You generally have to pay off the line when you sell.

Federal rules that protect you

• Three days to change your mind. On a HELOC secured by your primary home (other than one used to buy it), federal law (Regulation Z, 12 CFR 1026.15) gives you until midnight of the third business day after opening to cancel. That’s why the money arrives a few days after you sign.
• When a lender can freeze or cut the line. Only in specific cases, such as your home’s value falling significantly below its appraised value for the plan, or a material change in your finances that makes the lender reasonably believe you can’t repay (12 CFR 1026.40(f)(3)(vi)).
• When a lender can call the whole balance due. Only for fraud or material misrepresentation, failing to make payments, or something you do or fail to do that harms the lender’s security in the home, such as letting the insurance lapse (12 CFR 1026.40(f)(2)).

Pros and cons of HELOCs

Pros

• Leaves a low-rate first mortgage completely untouched
• Usually faster to open than a refinance
• Revolving: what you repay you can borrow again while the line is open
• Interest may be deductible when the money buys, builds or substantially improves the home (IRS Publication 936; consult a tax advisor regarding the deductibility of interest)

Cons

• Most HELOC rates are variable, so the cost can rise
• On many HELOCs the payment changes when the borrowing stage ends, and it can be much higher
• A large line you barely use still counts in full when you later refinance your first mortgage, under Fannie Mae’s combined-limit rules
• Your home is the collateral, so this is not the place for speculative or discretionary borrowing

HELOC or something else?

• Cash-out refinance: replaces your whole first mortgage with a larger one and pays you the difference. Better when your current mortgage rate is at or above today’s market, or when your equity is too thin for a HELOC at your score. Worse when it means giving up a low first-mortgage rate.
• Fixed-rate home equity loan: the lump-sum sibling of the HELOC. Same second-lien position, one loan repaid in set installments. Given the 75% first draw most of our partner HELOCs require, it is often the cleaner choice for a single known project.
• Rate-and-term refinance: if what you really want is a lower payment rather than cash, start here.

For the bigger question of whether to tap equity at all, our West Michigan equity guide lays out the three rules that keep it from turning into regret.

How to get started with Priority Home Mortgage

Priority Home Mortgage is based in Grand Rapids, Michigan. On our in-house HELOC options, we’re the lender. For a HELOC outside our in-house options, we place your loan with one of our lending partners; the partner is the lender. Terms vary more from lender to lender than on almost any other mortgage, so we’ll put a HELOC next to a cash-out refinance and a fixed-rate home equity loan for your actual numbers and tell you plainly which one wins. Start with a quick quote and tell us roughly what your home is worth, what you owe, and what the money is for.

Guides on this topic

• Unlock Your Home’s Value with a Fixed-Rate Home Equity Loan
• The Equity Harvest in West Michigan: Unlocking Home Value Without the Regret

Home Equity Line of Credit (HELOC) in Michigan: your questions, answered

Who is the lender on my HELOC?

It depends on the option. On our in-house HELOC options, we're the lender. For a HELOC outside them, we place your loan with one of our lending partners; the partner is the lender. We tell you up front which one your file fits, and the lender on your plan is the one that gives you its HELOC disclosures.

What credit score do I need for a HELOC?

640 is the lowest score our lending partners accept on a HELOC: on a primary residence, and on a second home with some of them. Investment properties start at 660 or higher. The score does more than open the door: it sets how much of your home's value you can borrow against. At 640 to 659 the combined limit is 65% to 70% of the home's value; at 680 and above it can reach 90% on a primary residence. No federal rule sets a HELOC credit minimum, so other lenders' floors differ. Our in-house HELOC options have their own guidelines, so ask us about your file.

Can I get a HELOC with a 620 credit score?

Not on our partner HELOCs, where the floor is 640; our in-house HELOC options have their own guidelines, so ask us about your file. A fixed-rate home equity loan, which is a closed-end second mortgage, can go to 620 on a primary residence with one partner, with your first mortgage and the new loan together capped at 65% of the home's value. If you would need to borrow more than 65% of your home's value in total, a cash-out refinance is underwritten under different program rules and is worth a look.

How much can I borrow on a HELOC?

Your first-mortgage balance plus the new line can't exceed your lender's combined loan-to-value limit for your score. Example: a $400,000 home with a $250,000 first mortgage. At an 80% limit, the total of both loans can be $320,000, so the line can be up to $70,000. At 90%, it can be up to $110,000. The property, the occupancy and the line size can lower that.

Do I have to draw the whole line at closing?

On most of our partner HELOCs, most of it: they require an initial draw of at least 75% of the line at closing, with further draws available afterward. If what you want is an untouched emergency line, those programs are not built for that, and we'll tell you plainly whether any option we have fits what you need.

How is a HELOC different from a home equity loan?

A HELOC is a revolving line: what you repay you can borrow again while the line is open. A home equity loan is a single lump sum repaid in set installments. Because most of our partners' HELOCs require most of the line to be drawn at closing, the practical difference is smaller than it sounds. Our home equity loan guide covers the lump-sum side, and we can put the two side by side for your numbers.

Does opening a HELOC affect my first mortgage?

No. A HELOC sits in second position behind your existing mortgage, which keeps its rate, term and payment. That is the main reason to choose one over a cash-out refinance when your first-mortgage rate is lower than today's rates.

Is HELOC interest tax-deductible?

Only to the extent the money is used to buy, build or substantially improve the home that secures the line, under IRS Publication 936. Interest on money used for anything else, including paying off credit cards, is not deductible. Consult a tax advisor regarding the deductibility of interest.