The Home Equity Line of Credit or HELOC is a popular financing programs that allow homeowners to borrow against the equity in their homes. They are especially beneficial for self-employed borrowers who may have irregular income patterns and need flexible borrowing options.
Guide to Find the Best HELOC for Self-Employed
HEM publishes this article to reveal the best HELOC options for self employed individuals, highlighting the unique challenges they face, the features to look for in a home equity line of credit or equity loan, and the top mortgage lenders, banks and credit unions that cater to their needs.
- HELOC with No Income Verification
- Stated Income HELOC
- Bank Statement HELOC
- Bad Credit HELOC
- No Doc Home Equity Loans
- Limited Documentation HELOCs
Understanding HELOC Loans
A HELOC is a revolving line of credit secured by your home’s equity. It functions similarly to a credit card, allowing you to borrow and repay funds as needed up to a certain limit during a draw period, typically 10 years. After the draw period, the repayment period begins, usually lasting 10-20 years, during which you pay back the principal and interest.
Challenges for Self-Employed Individuals
Self-employed individuals often face unique challenges when applying for financial products like HELOCs:
- Irregular Income: Unlike salaried employees, self-employed individuals may have fluctuating monthly income, making it harder to demonstrate consistent earnings. Many borrowers like to choose the stated income home equity loan.
- Complex Documentation: Self-employed loan applicants may need to provide extensive documentation, including tax returns, profit and loss statements, and business records, to prove their income.
- Higher Risk Perception: Home equity lenders may perceive self-employed borrowers as higher risk due to the variability in income, potentially leading to higher interest rates or stricter qualification requirements with home equity loans and second mortgages.
Whether it’s fair or not, business owners are often viewed as having less stable income compared to salaried employees. Most banks and lending underwriters consider a self-employed borrower to be a higher risk for default than a salaried borrower that has a steady job. This can make it more challenging to qualify for the best self employed HELOC or home equity loan.
However, whether you’re seeking a loan to expand your business, remodel your home, or pay for your child’s college education, small business owners might find it easier to secure a home equity loan compared to other finance products. Personal loans or home improvement loans, for instance, can be harder to obtain because they are typically unsecured, whereas home equity loans are secured by using your house as collateral.
Key Features to Look for in a HELOC
When seeking the best HELOC for self employed individuals, consider the following features:
- Flexible Income Verification: Look for mortgage lenders that accept alternative income documentation, such as bank statements, instead of traditional pay stubs and W-2 forms.
- Competitive Interest Rates: Since HELOC interest rates can vary, find a mortgage lender that offers competitive rates to minimize borrowing costs. Shop for the best HELOC rates.
- Low Fees: Pay attention to application fees, closing costs, annual fees, and other charges that can add up over time.
- Generous Credit Limits: Choose a lender that offers large home equity loan limits and high credit limits, allowing you to access a significant portion of your home’s equity.
- Customer Service: Choose a lender with strong customer service and support, particularly those experienced in working with self-employed individuals.
Top HELOC Lenders for Self-Employed Individuals
Here are some of the top HELOC lenders that cater to the unique needs of self employed borrowers looking for a home equity loan or line of credit:
Loan Depot
Overview: Loan Depot offers a fully digital HELOC application process, making it convenient for busy self-employed individuals.
Key Features:
- Fast Approval: Get approved for a home equity loan or home equity line in as little as five minutes and access funds in a few days.
- Competitive Rates: Offers competitive HELOC interest rates, which can provide stability for self-employed home equity loans with a fixed interest rate.
- Flexible Income Verification: Accepts alternative documentation for a mortgage loan, making it easier for self-employed individuals to qualify.
Pros:
- Quick and easy online application.
- No in-person visits required.
- Transparent fee structure.
Cons:
- Limited to certain states.
- Requires a minimum credit score of 600.
Bank of America
Overview: Bank of America provides a robust HELOC product with various features tailored to self-employed individuals.
Key Features:
- Introductory Rates: Offers low introductory interest rates for the first six months.
- Flexible Repayment Options: Allows interest-only payments during the draw period.
- Online Management: Provides a comprehensive online platform for managing your HELOC.
Pros:
- Reputable national bank with extensive resources.
- Attractive introductory rates.
- Comprehensive online and mobile banking tools.
Cons:
- May require higher credit scores for the best rates.
- Potentially higher fees compared to credit unions.
Citibank
Overview: Citibank offers HELOCs with competitive rates and flexible terms, making it a good option for self-employed homeowners
Key Features:
- No Closing Costs: Covers closing costs for lines of credit up to $1 million.
- Flexible Terms: Offers draw periods up to 10 years and repayment terms up to 20 years.
- Interest Rate Discounts: Provides rate discounts for automatic payments and relationship banking.
Pros:
- No HELOC closing costs for large lines of credit.
- Competitive interest rates with discounts.
- Flexible draw and repayment terms.
Cons:
- Requires good to excellent credit for the best rates.
- Not available in all states.
Chase Bank
Overview: Chase Bank is a well-known national lender offering HELOCs and home equity loan programs with competitive rates and flexible options for self-employed individuals.
Key Features:
- Low Introductory Rates: Offers low introductory rates for the first year.
- Online and Mobile Access: Provides robust online and mobile banking services for easy account management.
- Rate Discounts: Offers interest rate discounts for automatic payments from a Chase checking account.
Pros:
- Well-established lender with a national presence.
- Attractive introductory rates and discounts.
- Comprehensive online and mobile banking tools.
Cons:
- Higher fees compared to credit unions.
- Requires strong credit for the best rates.
Tips for Applying for a HELOC as a Self-Employed Individual
- Prepare Your Documentation: Before applying for a home equity loan or credit line, gather all necessary documents, including tax returns, bank statements, profit and loss statements, and business records, to prove your income.
- Improve Your Credit Score: Aim to improve your credit score by paying down debt, making timely payments, and correcting any errors on your credit report. If you have a past bankruptcy or a low credit score, consider home equity investing with no minimum credit score requirements. Otherwise request a bad credit HELOC.
- Shop Around: Compare offers from multiple lenders to find the best interest rates, terms, and fees.
- Consult a Financial Advisor: Consider consulting with a financial advisor who can help you navigate the application process and choose the best HELOC for your needs.
Summary of the Best HELOC Loans for Self Employed Borrowers
Finding the best HELOC for self-employed individuals involves understanding the unique challenges and opportunities presented by this type of financing. By focusing on flexible income verification, competitive interest rates, and low fees, you can identify the right HELOC that meets your financial needs. Top lenders offer strong options for self-employed homeowners each with its own set of features and benefits.
The Home Equity Mart (HEM) can help you shop lenders and bankers for the best HELOC for self-employed and independent contractors across the country. By carefully evaluating your options and preparing your documentation, you can find a secure loan with a HELOC that helps you achieve your financial goals