How to Extend the Limit on an Equity Line
Home equity lines of credit are often fabulous tools to help revitalize and renovate an existing home. They can provide the additional cash needed to spruce up a kitchen, remodel a bathroom or even construct an addition to a home. However, it is important to choose equity loans wisely, particularly because these loans are tied to the value of your home, which can fluctuate according with market conditions. There are two ways to extend the limit on a home equity loan.
Call or e-mail your current equity loan lender. Ask for an extension on your home equity loan. This is called a "mini application." It is possible that with your existing information (creditworthiness, income) from your original application, your lender can simply extend the credit line.Step 2
Pull a copy of your tri-bureau credit report (composed of reports from Equifax, Experian and TransUnion) if you cannot get a quick extension. Look for any negative credit, including late payments, charge-offs, delinquent accounts, judgments or tax liens. Consider postponing a credit limit extension if you find any negative information on your report. It is important to clean up negative reports prior to adjusting an equity line.Step 3
Purchase a copy of your FICO score. This is a three digit number between 300 and 800 that illustrates your creditworthiness. A very good FICO score is above 720; a poor score is below 600. Rethink applying for an equity line extension if you have a poor FICO score.Step 4
Calculate your debt-to-income ratio (DIR). To calculate DIR, divide the total of your gross monthly income by the total of your monthly debt payments. Do not include utility bills in this calculation, but do include your current monthly mortgage payment. Extending your credit limit will cause your monthly payment to increase, and lenders will want to make sure you have enough room in your debt-to-income ratio to account for a payment increase. Most lenders require a DIR of less than 40 percent.Step 5
Calculate your loan-to-value (LTV). To calculate LTV, divide the total of home loans on your house by the total value of your home. Most lenders require an LTV at or below 80 percent; however if you have strong credit and disposable income, some underwriters will allow exceptions to this standard policy.Step 6
Contact your loan officer and provide him with a current home equity bill, a copy of your homeowners insurance, your current equity line loan agreement, two most recent pay stubs, two years of your tax returns and a copy of your property tax bill. Ask your loan officer to submit an application for an extension on your credit limit based on these documents.Step 7
Sign the new extension contract if the approval is granted by the lender's underwriting department. If you are denied, improve your credit for at least three months and reapply with your lender.
- If you find that after several attempts, you cannot extend your equity line, you might want to consider other lenders and other home equity loan options.
- Be careful when signing any new paperwork on an existing equity loan. You do not want to refinance the loan itself, you merely wish to extend the credit line. There are some unscrupulous lenders who may attempt to entirely refinance the equity loan so as to garner new origination fees on the money you have already borrowed. You need only pay fees on the amount of the extension.
Based in Eugene, Ore., Duncan Jenkins has been writing finance-related articles since 2008. His specialties include personal finance advice, mortgage/equity loans and credit management. Jenkins obtained his bachelor's degree in English from Clark University.