How to prepare to apply for a 1st Lien HELOC

Updated as of January 2, 2024 | FirstLienHELOC.com

Good to Know

The process for applying for a 1st Lien HELOC is very similar as to the process of applying for a traditional mortgage. Most 1st Lien HELOC lenders will maintain an 80% or 90% loan to value, meaning you’ll need to pay a deposit of 10-20% down on your financed home.

Financing a home is one of the largest purchases that most Americans will ever make. If you’ve been exploring your financing options, you might have heard of the power of a 1st Lien HELOC. We are in the midst of a financing revolution. One where many have replaced their mortgage with a 1st Lien HELOC and reaped large rewards for it.

Are you ready to buy your first self-owned home? Perhaps the more important question is, are you prepared to finance a new home? Wanting a new home and qualifying for the needed financing are two different matters. So you will need to complete some paperwork before getting very far into your home search. But do you know that qualifying for your first mortgage — in other words, your “first lien” — means you probably will also qualify for a first-lien HELOC loan? Are you asking yourself, “What is a HELOC loan, and why would I want one? If so, stay tuned as we go through the steps from qualifying for a first-lien HELOC application process to closing on a home.

Qualifying for a 1st Lien HELOC Application

A first-lien HELOC (home equity line of credit) can be a convenient way to finance a new home. But first, you need to qualify for a HELOC, which is roughly equivalent to qualifying for a mortgage. Equity, income, and credit scores have roles in both. Because HELOCs are not US government subsidized (as are the overwhelming majority of today’s mortgages), banks can be more flexible with HELOC applicants than government programs and agencies like Fannie Mae, Freddie Mac, FHA, USDA, or VA might be.

Still, you might not qualify for a first HELOC loan if your credit score is less than 700. A score of at least 680 is recommended, and one over 700 will let you enjoy the best rates and terms.
It is advisable to begin the loan application process with an estimate of how much you will need to borrow. Consider monthly payments, moving costs, necessary home improvements, etc.

What Is an All-in-One First-Lien HELOC?

What is a first-lien HELOC, and how does it benefit homebuyers? There are a couple of different ways.

When part of an “all-in-one mortgage,” a first-lien HELOC allows a homeowner to pay down more interest in the short-term while having access to any accrued equity. A savvy first-time borrower might choose this option.
Another option is to refinance. Since a first-lien HELOC is a credit line and mortgage in one, it can replace your existing mortgage.
It also allows you to withdraw cash (as a form of home equity loan) for the loan’s duration without needing to refinance.

At the same time, insightful and well-organized borrowers can speed up the loan pay-off. They can apply direct deposits to the loan’s principal, reducing the mortgage interest and term length.
In other words, payments go toward the mortgage principal and interest yet can still be withdrawn.

Step 1: Sign Up on FirstLienHELOC.com

If you’re shopping to apply for a 1st Lien HELOC, then you should sign up on our site. We’ll connect you with the right banks to help you get the best terms for your 1st Lien HELOC and ensure you have the support you need to achieve the life changing strategy.

Step 2: Apply With An Approved Lender

At the beginning of the first-lien HELOC loan application process, you will select a lender and notify them of your intention to apply for a first-lien HELOC loan. You can do this by pre-qualifying for the loan. Once you receive satisfactory loan approval, if a loan officer doesn’t invite you to discuss the loan and its terms, it would be a good idea to set up an appointment.

Talk With The Loan Officer

You want to make sure this loan is a good fit, and you understand all the disclosures. So it would be best to prepare yourself to ask and discuss the following or any related questions:

  1. What is the introductory rate? Find out if there is a low introductory rate and how long it will last. You might end up paying for it through a higher margin on interest rates.
  2. What is a margin? A margin is the difference between the amount borrowed and your collateral’s value (e.g., your home). The interest rate is prime plus the margin.
  3. What is the minimum draw requirement? The minimum draw is the least amount you must take out at closing.
  4. What is the average balance I must maintain? HELOCs often expect you to maintain a balance, so find out what the interest rate will be.
  5. What about the closing costs? Closing costs for HELOCs are generally low. But ask about extra fees and, if possible, compare Good Faith Estimates (GFE) from multiple lenders.
  6. What is my annual fee? Most HELOCs have small yearly fees, but they vary among lenders.

Don’t forget to ask your loan officer what you’ll need to prepare for the underwriting stage.

Step 3: Submit Your Documents

The more organized you are, the faster the loan approval process. So be sure to include all the documentation the lender requires for underwriting.

The documents typically needed for loan underwriting include:

  • W-2 forms from the past two years
  • Signed federal tax returns from the past two years
  • Documentation of any other sources of income
  • Your two most recent bank statements
  • Documentation of your down payment source in the form of investment or savings account statements showing at least two months of ownership.
  • Documentation of a recent name change, if applicable
  • Proof of identity (drivers’ license or non-driver ID)
  • Social security number

Step 4: Underwriting

Underwriting is the lender’s process of assessing the risk of lending money to you.  During this time, your Loan Officer will order and receive the appraisal and will submit the loan to the underwriter for the lending institution.

After the underwriter initially reviews your file they will likely request additional documentation and explanations for items that are unclear to them.  Once you submit all the additional documentation the underwriter requires and they deem the loan to be satisfactory they will give the “clear to close.”

Step 5: Close on Your 1st Lien HELOC

Once all the details of your first-lien HELOC loan are in place, it’s time to schedule the closing, pay the closing costs, and, finally, close on your loan.

A New Home & Home Owner

Successfully qualifying for a first-lien HELOC application and completing it must seem like a huge relief. All those documents to prepare. All that time waiting for news of your loan approval.
If you’re a first-time homebuyer, you might have found this article a bit overwhelming. Many people do. So be sure to keep learning about this and other financial topics for more information on how to manage your money.

At FirstLienHELOC.com, we focus providing accurate and strategic information on using a 1st Lien HELOC to empower your financial life.

Disclaimer: Recognize that all lenders will have different underwriting guidelines, specific to maximum loan-to-value, credit score, debt to debt-to-income ratio, and that the content on this page is general advice when shopping this loan product.

Achieve Financial Freedom

Sign up on FirstLienHeloc.com to get connected with a licensed lender who can deliver an all-in-one 1st Lien HELOC. They’ll walk you through the application process and help outline your budget, your numbers, and exactly how much you can save by replacing your mortgage.