Spring is underway, and so Americans’ thoughts are turning to love, baseball and home buying.
But with home prices rising and tight supplies limiting sales, many homeowners instead are choosing to remodel. And you know what that means: Home equity loans are back!
No, it’s not the roaring mid-2000s again, when Americans turned their houses into ATMs. But credit-reporting agency Equifax is expected to announce soon that lenders originated home equity lines of credit with limits of $146.1 billion in 2015, up about 20% from 2014 and the third straight year of growth at that level or higher.
The total is up sharply from $73.2 billion in 2011 but still well below the more than $350 billion originated in 2005.
“The home equity lending market is improving,” says Equifax Chief Economist Amy Crews Cutts. “Yet we are still seeing very tight underwriting.”
A big reason for the revival is a steady climb in home prices, letting homeowners borrow more against their rising equity. Average prices are up 35% since the market bottomed in 2012 and just 4.9% off the 2006 peak, S&P/Case-Shiller says.
“Consumers are more comfortable using the equity in their house,” says Brendan Coughlin, head of consumer lending for Citizens Bank, the No. 6 home-equity lender. “The housing market is improving, consumer confidence is improving and unemployment is declining.”
During the boom, homeowners took out equity lines for everything from vacations to boats. Now, they’re drawing on them for home improvement, as well as debt consolidation, emergencies and education expenses, Coughlin says. Refinancing also represents a significant share.
If you’re thinking of taking out a credit line, bank standards are still tight. Equifax’s Cutts says borrowers’ median credit score was a lofty 788 in the fourth quarter, though Coughlin says the minimum is typically 640.
Lenders have gotten a bit more flexible. Cutts says some banks have modestly eased debt-to-income requirements. And consumers can borrow, through both a mortgage and home equity loan, up to 85% of a home’s value, up from 80% in 2010 but below the 100%-plus lines permitted industrywide before the housing crash, Coughlin says. Analyst Greg McBride of BankRate.com says some banks’ ratios are as high as 90%.
