VA Loan HELOC: Unlock Your Home Equity with a VA Home Equity Line of Credit

Many people find themselves facing unexpected financial hardships or issues, for which they need immediate access to cash. Often, some choose to take out a loan dedicated to the purpose, but for others, especially those who might not qualify for a new loan on top of existing ones, borrowing against a home’s equity is a viable option. A home equity line of credit (HELOC) is a revolving loan, like a credit card, that allows you to borrow against the equity you’ve built in your home, offering flexible access to funds and repayment options. For Veterans and Servicemembers who have VA-backed home loans, a VA-backed HELOC with favorable terms and rates is an attractive financial decision. It is not, however, without its risks, and in some cases, a VA loan HELOC comes with certain stipulations and restrictions.

What is a VA Loan HELOC?

A HELOC is a line of credit secured by the equity in your home, meaning you can borrow up to a set limit and repay as needed, similar to how a credit card works. If you fail to repay the loan, your home could potentially face foreclosure. In typical HELOCs, you will have a credit limit, and you can borrow funds as needed during a “draw period,” and you can repay the balance and then borrow again, as long as you’re within your credit limit. Once the draw period ends, you’ll enter a repayment period where you’ll need to pay off the outstanding balance. A VA HELOC is available only to Veterans, active duty Servicemembers and their families, and some civilian contractors for the Department of Defense, and often comes with better interest rates than regular HELOCs and other beneficial financial options. It is important to note that a HELOC differs from a home equity loan in that with a home equity loan, you receive a lump sum upfront and repay it in fixed installments over a set period, and with a HELOC, you can borrow and repay as needed, making it more flexible. A VA home equity line of credit can be used for home improvements, debt consolidation, large purchases, and education expenses, among others.

There are some risks associated with this form of credit. If you cannot make payments, you might lose your home in the process. HELOCs typically have variable interest rates, so your payments can increase if interest rates rise. They also might not compare favorably to other forms of debt. While other loans provide a lump sum upfront for immediate repayment, a HELOC allows you to borrow during a specified period and repay it later. HELOCs tend to have variable rates, meaning the payment amounts might change, while other loans typically have fixed rates.

Key Features of VA Home Equity Line of Credit

A VA-backed Home Equity Line of Credit allows Veterans to access home equity with flexible borrowing, similar to a credit card, and often at lower interest rates than personal loans, backed by the VA’s guarantee. VA HELOC loans usually come with the following features:

• Flexible Access to Funds: Like a credit card, you can borrow, repay, and borrow again up to your credit limit.
• Lower Interest Rates: HELOCs typically offer lower interest rates than personal loans or credit cards due to using your home equity as collateral.
• Draw and Repayment Periods: HELOCs have a draw period (when you can borrow) followed by a repayment period, usually spanning 15 to 30 years combined.
• No Down Payment: VA loans, including HELOCs, don’t require a down payment.
• No Private Mortgage Insurance (PMI): VA loans, including HELOCs, don’t require PMI.
• Potential Tax Advantages: Interest payments on a HELOC used for home improvements may be tax-deductible.
• Borrowing Flexibility: You can use the funds for various purposes, including home improvements, debt consolidation, or other expenses.
• Variable Interest Rates: A VA home equity line of credit generally has variable interest rates, meaning the interest rate can fluctuate over time.
• No Loan Limits: For a VA-backed HELOC, there are no loan limits set by the VA for borrowers with full entitlement, meaning they can borrow up to the amount the lender is willing to provide.

Eligibility & How to Apply for a VA Loan HELOC

To qualify for VA HELOC loans, you must first have a VA-backed home loan. VA home equity loan terms usually stipulate this important point. To be eligible for a VA loan HELOC, you must meet the following requirements for a VA-backed home loan:

• You have served 90 continuous days as an active duty Servicemember.
• You are a Veteran with 90 days of wartime service or 181 days in peacetime or more.
• You have 6 years of service in the National Guard or Reserves, or served 90 days (at least 30 of them consecutively) under Title 32 orders.
• Your loan is for a home that is your primary residence, which you occupy.
• You have a VA Certificate of Eligibility.
• You have satisfactory credit and income.
• You have a credit score of 650 or better.
• You already have equity in the home after a period of successful payments.

To apply for VA HELOC loans:

• Gather the necessary documentation, such as your service record, payment stubs, the details of your home loan, and the applications for the HELOC from the lender you choose.
• Compare potential lenders and the rates they offer, paying attention to the variable rates of most HELOCs.
• Speak with the finance officer of your loan provider and begin the process of applying either online or in person.

VA Loan HELOC vs. VA Home Equity Loan: What’s the Difference?

Some people use the terms “home equity line of credit” and “home equity loans” interchangeably, but actually they are very different.

VA HELOC Rates: What You Need to Know

When considering VA HELOC loans, understand that rates are variable and tied to market indexes, potentially fluctuating with interest rate changes. Furthermore, HELOCs offer flexible access to funds but require careful management of the draw and repayment periods. This means that, throughout the course of repayment of the loan, your payments might vary from month to month, which might make it difficult for those on fixed incomes to plan accordingly for future payments. Some payments may be higher or lower than those made in the past. Typical civilian HELOC rates run between 7.3% and 8.5%. VA HELOC rates for VA-backed loans might go as low as 4.8%. Veterans seeking HELOC loans might get special bonuses and offers from financial groups such as the Navy Federal Credit Union, which has late payment forgiveness and periods of deferred payment for deployments.

Finding Lenders for VA Loan HELOCs

To find lenders for a VA home equity line of credit with a VA-backed loan, you can start by researching financiers that specialize in VA loans and offer HELOCs, such as Veterans United Home Loans or Navy Federal Credit Union, or by checking with banks, credit unions, and online lenders that offer both VA loans and HELOCs. Start with these steps:

• Research VA loan lenders through online resources such as Bankrate and NerdWallet, or check the VA lender directory for a list of VA-approved lenders. Be sure to read reviews and choose a lender with excellent customer service reviews and rates you can afford. Be sure to compare multiple lenders.
• Check for availability. Not all VA lenders offer HELOC options. The best HELOC for Veterans might not be from the most popular lender. You can contact lenders directly to inquire about VA HELOC options or work with organizations like Veterans United HELOC directories. Veterans United doesn’t offer HELOCs themselves but can direct you to a trusted financial partner.
• Consider different types of lenders, from traditional banks to credit unions and even online lenders.

Frequently Asked Questions About VA Loan HELOC

Consider some of these common questions related to VA loan HELOC when searching for the best HELOC for Veterans. Be sure you ask a financial officer at your bank any questions not answered here about your VA home equity loan.