Key Takeaways
- HELOCs are revolving credit lines secured by your home’s equity, allowing flexible borrowing and repayment.
- A typical HELOC includes a 10-year interest-only draw period, followed by a 10-year repayment period with principal and interest.
- Unlike a home equity loan, a HELOC offers on-demand access to funds, similar to a credit card, with a variable interest rate.
- Texas HELOCs are highly regulated, offering strong consumer protections:
- Primary residence only
- 75% maximum combined Loan-to-Value (LTV)
- Only one HELOC/home equity loan at a time
- Home must be owned for at least 12 months
- Herring Bank’s HELOC program features:
- Minimum FICO score of 660
- Lines from $25,000 to $150,000
- Interest rate tied to Wall Street Journal Prime + margin based on credit
- No prepayment penalty
- Available only for Texas properties
- Texans commonly use HELOCs for home improvements, debt consolidation, education, or emergency funds.
- Most Common HELOC Cities: Austin, Dallas, Houston, San Antonio, El Paso, Lubbock, Plano, Frisco, Waco, Corpus Christi, Amarillo.
Texas home values have been the talk of the town for years, from the bustling suburbs of Dallas-Fort Worth to the vibrant neighborhoods of Austin and Houston. As a homeowner, you’ve likely seen your property’s value grow, building a powerful financial asset known as equity. But what if you could put that equity to work without selling your home?
That’s where a Home Equity Line of Credit (HELOC) comes in. This flexible financial tool can help you fund major projects, consolidate debt, or cover significant expenses by leveraging the value you’ve already built. This guide will walk you through what a HELOC is, how it functions under Texas guidelines, and why it might be the perfect solution for your financial goals.
What is a Home Equity Line of Credit (HELOC)?
At its core, a HELOC is a consumer loan secured by the equity in your home. Think of it less like a traditional loan and more like a credit card with a much larger limit and better interest rate. It operates as a revolving line of credit, which means you can borrow money up to your approved limit, repay it, and then borrow it again as needed throughout the life of the loan.
This flexibility is what makes a HELOC so attractive. You only draw and pay interest on the amount you actually use, not the total amount you’re approved for. According to Herring Bank’s HELOC policy, this financial tool is available exclusively for an owner-occupied, primary residence in Texas.
How a HELOC Works: The Two-Phase Journey
A HELOC isn’t a single, continuous loan; it’s structured into two distinct phases: the Draw Period and the Repayment Period.
The Draw Period
This is the active phase of your HELOC where you can access your funds. Our policy specifies a 10-year, interest-only draw period. During these 120 months, you can make withdrawals (or “draws”) as you need them for your projects.
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Flexible Access: You can borrow money as needed, making it ideal for projects with unpredictable costs, like a major home renovation.
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Minimum Draws: To ensure efficient use, there is a $4,000 minimum for each draw.
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Interest-Only Payments: During this decade, your monthly payments are typically only on the interest that has accrued on your outstanding balance. This results in lower initial payments, freeing up cash flow.
The Repayment Period
Once the 10-year draw period expires, you can no longer borrow from the line of credit. At this point, your loan enters the repayment phase. Any outstanding balance is converted into a 10-year, fully amortizing loan.
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Principal and Interest: Your monthly payments will now include both principal and interest, designed to pay off the remaining balance completely over the next decade.
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Predictable Payments: While your interest rate may still be variable, the payment structure is designed for a full payoff over the term, creating a clear finish line for your loan.
HELOC vs. Home Equity Loan: What’s the Difference?
It’s easy to confuse a HELOC with its close cousin, the Home Equity Loan. While both use your home’s equity as collateral, they function very differently. Understanding this distinction is key to choosing the right product for your needs.
| Feature | Home Equity Line of Credit (HELOC) | Home Equity Loan |
|---|---|---|
| Funds Distribution | Revolving line of credit; draw what you need, when you need it. | One-time lump sum payment upfront. |
| Interest Rate | Typically variable, adjusted annually. | Typically fixed for the life of the loan. |
| Monthly Payments | Interest-only during draw period, then principal + interest. | Fixed monthly payments from the start. |
| Best For | Ongoing or phased projects (e.g., renovations, education, cash flow). | Single large expenses with a known cost. |
Learn more about both options on our Home Equity Lending page.
Why Texans Use HELOCs
The flexibility of a HELOC makes it a popular choice for homeowners across the Lone Star State for a variety of reasons.
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Home Renovations: Whether you’re planning a kitchen remodel in your San Antonio home, adding a backyard pool in Houston, or building a new deck in Amarillo, a HELOC provides the funds as your project evolves. It’s available for Single-Family Residences (SFR) and Planned Unit Developments (PUDs), though not for condos or manufactured homes.
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Debt Consolidation: Combining high-interest debts into a lower-interest HELOC payment can reduce your monthly obligations and save on interest.
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Education Costs: Use a HELOC to fund semester-by-semester tuition payments for college or trade school.
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Emergency Fund: Life happens. A HELOC provides peace of mind for medical bills, roof repairs, or family emergencies—without dipping into savings or retirement.
Key Texas HELOC Requirements
To ensure responsible lending, Texas has strict home equity loan regulations under Section 50(a)(6) of the Texas Constitution.
Here are Herring Bank’s core HELOC eligibility guidelines:
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Home Ownership Duration: Must have owned your home for at least 12 months.
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Loan-to-Value (LTV): Total mortgage balances (including HELOC) must not exceed 75% of your home’s appraised value.
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Debt-to-Income (DTI): Your total debt payments should not exceed 40% of gross income.
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Credit Score (FICO): Minimum 660 FICO score required. Higher scores reduce your interest rate.
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Loan Size: Minimum line of $25,000, maximum of $150,000.
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Appraisal: A full appraisal is required and must be paid up front.
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Title Review: A title search is conducted to ensure clear ownership and uncover existing liens.
Want to estimate your loan potential? Use our HELOC calculator to get started.
Conclusion: A Powerful Tool for Texas Homeowners
A Home Equity Line of Credit offers incredible flexibility, turning the value locked in your house into a usable asset. It’s a powerful tool for funding life’s biggest projects and goals. By understanding the two-phase structure, qualification requirements, and how it differs from traditional loans, you can make an informed decision.
With no prepayment penalty, low origination fees, and transparent terms, Herring Bank’s Texas HELOC program is built for responsible homeowners ready to take control of their financial future.
📞 Ready to learn more or apply? Contact a Mortgage Expert today and discover how your home equity can go to work for you.
