“People are really focused on using it for what they need, rather than for what they want,” said Kelly Kockos, senior vice president of home equity at Wells Fargo Home Mortgage, the nation’s largest lender. “It’s less about, ‘Oh, I want a trip or a boat,’ but more what they need.”
Borrowers also want a loan that is fully amortizing, too, according to Kockos. No interest-only payments. Wells Fargo changed its home equity line product two years ago, requiring that borrowers begin making principal payments on home equity lines immediately. This keeps them from payment shock at the end of the so-called “draw period,” which is usually 10 years. Wells Fargo also has a minimum FICO requirement of 680.
“The home equity process has shifted, and it’s more like getting a mortgage these days,” said Kockos.
Black Knight analysts estimate that about 37 million borrowers have “tappable” home equity; that is, using a limit of 20 percent equity most lenders now require in the home, they have some equity beyond that which they could take out. More than one-third of that equity is in California alone. The vast majority of home equity is also in the top 10 metropolitan housing markets.