• Home equity lines of credit offer credit lines to use for any reason.House image by Gon?¡ìalo Carreira from Fotolia.com
  
  Home equity lines of credit (HELOC) are for homeowners who are comfortable using their home as collateral for a credit line. HELOCs give owners a portion of their equity, which is the value of the home minus the loans against it. Because of the collateral, the loans may not be difficult to obtain and interest rates are generally much lower than those on other types of loans, including credit cards.
  
  

Significant Equity

• Having significant equity in your home is necessary before approval for a HELOC. Without sufficient equity in your home there's no collateral to secure the loan, making approval impossible. The lender will establish the available equity in your home by first ordering an appraisal. This determines the current market value. Then the lender will compare the appraised value of the property with the balance remaining on your first mortgage. For HELOC approval, your house must be worth at least 15 to 20 percent more than the current balance on the mortgage. That gap represents your equity. For example, if you purchased a home for $100,000 and paid $10,000 down for a balance of $90,000. Then home prices accelerated and now your home is appraised at $130,000. That gives you $40,000 in equity.
  
  

Low Debt-To-Income

• You must show that you can afford to make the payments on your HELOC. The lender will determine this by comparing your monthly debts and expenses. This is done in two steps. First, total monthly payments will be calculated for your mortgage payment, property taxes, potential HELOC payment, homeowner's insurance and mortgage insurance. The total should not exceed 28 percent of your monthly gross income, according to HELOCBasics.com. Once you pass that hurdle, the lender will add other household expenses into the equation. Essentially, all your other recurring bills will be added, including credit card payments, student loans, alimony and child care. The overall total once these items are added should not exceed 36 percent of your gross monthly income.
  
  

Credit Score

• The HELOC Basics website says that you'll need a credit score of at least 500 to be considered for a loan, but don't expect a score that low to attract many offers. Loan approval is more likely with credit scores of 620 or higher. Scores above 700 will qualify you for the best rates and terms. The higher your credit score, the better. Higher scores attract the lowest interest rates and fees.
  
  

Stable Employment

• A steady job or income over the past two years is another important qualification. Remaining in the same field or profession also is seen as a sign of stability. For example, it may be considered a negative if a HELOC application revealed that a 20-year school teacher suddenly changed careers nine months ago to become a bakery chef. Underwriters might be hesitant to approve the HELOC in this case for fear that the applicant may not be successful as a bakery chef and eventually lose the job and be unable to make the HELOC payments.