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Mortgage  Question?
Can I get a HELOC on a home with no mortgage?

Can I get a home equity line of credit on a home with no mortgage? We currently own a home with a mortgage but inherited another home free and clear and want to get a HELOC to fix it up and eventually move into it.

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

You should be able to take out a home equity line of credit (HELOC) on the second home but there are several points for you to consider.  As a starting point, you should review our comprehensive overview of how a HELOC works on FREEandCLEAR.

First, to qualify for a HELOC you must meet the lender's borrower qualification requirements which focus on your credit score and debt-to-income ratio. Assuming your credit score is sufficient, lenders review your debt-to-income ratio to determine if you earn enough monthly gross income to make the HELOC payment in addition to paying property taxes and insurance for both homes, the mortgage payment for the home you currently live in plus any other monthly debt payments such as credit card, auto and student loans. HELOC lenders also review the loan-to-value (LTV) ratio, or the ratio of loans on a property to the value of the property, but because there is no other mortgage on the property you should be good to go on that point. With a low LTV ratio, multiple lenders should be interested in providing you financing assuming you qualify for the loan.

Another key point that you should be aware of is that because you do not currently live in the property you want to get the HELOC on, lenders classify the loan as non-owner occupied, even if you intend to move into the property in the future. This is important to understand because it can be more challenging to find lenders that offer HELOCs on non-owner occupied properties.

Based on our experience, credit unions and local banks are your best lender options for a non-owner occupied HELOC. For example, PenFed Credit Union has a presence in your state and there may be other credit unions you are eligible to join. Please note that some lenders including credit unions may impose additional borrower conditions, such as opening a bank account, to be eligible for a loan.

We recommend that you contact multiple lenders to understand how they would handle your unique situation. You can review lenders in your area by clicking INTEREST RATES We advise you to contact at least four lenders as HELOC pricing varies. Plus, comparing lenders is the best way to save money on your HELOC.

When you contact lenders to request HELOC proposals make sure to ask if they charge a pre-payment penalty or a non-utilization fee. Some lenders charge a penalty if you pay off and close your HELOC within a pre-determined number of years and some lenders charge a non-utilization fee if you do not maintain a minimum HELOC balance. Although we recommend that borrowers avoid pre-payment penalties and non-utilization fees you can always negotiate these points if you find a lender that offers a HELOC with an attractive interest rate and fees. Additionally, some lenders offer borrowers a closing cost credit but require you to repay the credit if your HELOC is paid off or closed within a set period of time, usually one-to-two years.

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Data provided by Informa Research Services. Payments do not include amounts for taxes and insurance premiums. Click for more information on rates and product details.

About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR. More about Harry

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