Can you get a HELOC in retirement?

Managing your finances is essential for a comfortable retirement. For homeowners, a home equity line of credit (HELOC) can be a valuable tool to help you do just that. 

‍

Whether you need to tackle home upgrades or want to supplement your income, a HELOC can provide you with financial flexibility at a better interest rate than most debt products. Since most lenders have strict income requirements, qualifying without traditional employer income can be challenging. However, it's not impossible. 

‍

This post will explore the reality of getting a HELOC in retirement, smart ways to leverage the funds, and alternative options to explore. 

Can you get a HELOC in retirement?

Yes, retirees can qualify for a HELOC—provided they meet the financial requirements. Lenders typically look for a credit score of 620 or higher, a debt-to-income (DTI) ratio of 43% or lower, 20% owned equity, and sufficient income. 

‍

You can demonstrate your financial stability through retirement income, such as Social Security benefits, pensions, or annuities, or leveraging assets like investment portfolios, savings, or IRAs. 

Ways to use a HELOC in retirement

Update your home

You'll likely want to—or need to—modify your home to keep it a safe and comfortable space during your golden years. For example, age-in-place renovations like slip-resistant surfaces and grab bars can accommodate changes in your lifestyle, mobility, and health. While energy-efficient upgrades like new appliances and windows can help reduce monthly utility costs.

‍

Using a HELOC to make home improvements can enhance your quality of life and may even come with tax benefits. 

Pay down debt

​​Consolidating high-interest debt with a low-interest HELOC can be a smart move. This strategy can help you increase your monthly cash flow and reduce your overall interest costs. It's a great way to find breathing room in your retirement budget and eliminate debt faster.  

Limit pre-tax retirement account withdrawals

Using a HELOC to supplement your income can help you be less reliant on pre-tax accounts like 401(k)s. By reducing your withdrawal, you can preserve your savings for longer and may be able to avoid drawing larger amounts that could push you into higher tax brackets. 

‍

This approach doesn't guarantee a reduced tax burden since taxes depend on various factors, including your overall income, filing status, and state tax laws. Whether this makes sense will depend on your unique situation, so it's always best to speak with a financial planner. 

Cover unexpected expenses

Unexpected emergencies like medical bills or urgent home repairs can really put a strain on your retirement funds. If not properly budgeted for, you may be cornered into using credit cards or personal loans to cover them. These high-interest-bearing debt products can lead you further into financial vulnerability if unpaid for too long. 

Investment opportunities

Some retirees use a HELOC to invest in opportunities like real estate or the stock market. Real estate can be a strategic way to hedge against inflation or build a passive income stream. 

‍

It's also possible to use HELOC funds to invest in a business or stocks. Although these carry greater risks, they can yield considerable returns if done well. Before leveraging equity for investment opportunities, consider consulting a financial advisor.

Alternatives to a HELOC

Home equity loan

One of the most common ways to draw on your equity is with a home equity loan. You’ll receive a single lump sum payout, which can be useful to cover one-time expenses like a major renovation. The biggest downside, however, is that you’ll be adding a monthly payment to your budget. Repayment consists of fixed monthly payments over a 5 to 30-year term; rates tend to be trend higher than HELOCs but are more favorable than personal loans. 

‍

You’ll need a credit score of 620 or higher, a DTI of 43% or lower, 15% to 20% equity, and sufficient income to qualify. 

Home equity investment

If you’re looking for a more accessible way to draw on your home’s equity, a home equity investment (HEI) is worth exploring. Eligibility requirements are more flexible—making this a great option for self-employed borrowers or individuals with low income or credit. 

‍

HEIs offer a single payout in exchange for a share of your home’s future appreciation. There are no monthly payments. You repay the HEI anytime during a flexible 30-year term when you sell the property, refinance, or use another source of funds. 

‍

There are no income or DTI requirements—you’ll need a credit score above 500 and sufficient equity to qualify. You can also gauge your eligibility through prequalification—with no commitment to apply. 

Reverse mortgage

For homeowners 62 years or older, a reverse mortgage is another way to tap home equity without taking on monthly payments. Using the financial tool, you can access a flexible credit line, monthly payouts, or a one-time payout.  

‍

This option is best for those planning to stay in their home long-term but comes with higher costs and potential risks. 

‍

To qualify, you’ll need a substantial amount of equity, the home must be your primary residence, and you’ll need to prove you can continue to afford property taxes, homeowners insurance, and maintenance. 

Frequently asked questions

Should you have a HELOC in retirement?

A HELOC in retirement can provide you with financial flexibility and help you accomplish various goals—however, it’s not without its risks. The loan can be a good option if you have a solid repayment plan and qualify for favorable rates and terms. Alternatively, if a HELOC will only serve as a temporary band-aid to greater financial issues, it’s worth exploring alternative options like government grants and programs.

What are the drawbacks of a HELOC?

There are various downsides to consider when deciding whether or not to move forward with a HELOC. For example, fees and closing costs will eat into the net benefit you receive. Additionally, variable interest rates may lead to fluctuations in your budget, which can make repayment harder to plan for. Most notably, defaulting on the loan can lead to foreclosure. 

Can you get a HELOC if you are on Social Security?

It’s absolutely possible to get a HELOC when on Social Security—lenders consider these benefits a source of fixed income. However, you’ll still need to meet other financial criteria, like debt-to-income and credit score requirements. 

Final thoughts

Whether you're looking to make your home a safe place to live for years to come or developing alternative income streams, a HELOC can be a strategic way to accomplish what you need to in retirement. However, before proceeding, it's crucial to weigh the pros and cons, evaluate your financial health, and consider how the loan will fit into your retirement plans. With the right approach, a HELOC can help you enjoy a financially secure and fulfilling retirement.

‍

Tackle your retirement goals while avoiding monthly payments with Point's Home Equity Investment. You can qualify for up to $500K with no income requirements. 

‍