Where to get a home equity loan
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The average American homeowner is sitting on a little over $334,000 in available equity — a record amount, according to CoreLogic estimates from the third quarter of 2022. To enable them to tap into that equity, obtaining cash for different needs, many kinds of lenders offer home equity lines of credit (HELOC) or home equity loans (it’s been a booming business since home prices and values took off in 2020). Whatever your financial goals are, here’s where you can get a home equity loan today.
What are home equity loans?
Your home equity is basically the difference between what your home is currently worth and what you still owe on your mortgage (calculating it isn’t hard). That equity — your ownership stake in your home — is an asset, one you can borrow against. There are two primary products that use your home equity as collateral: a HELOC, a type of credit line with a variable interest rate — not unlike a credit card; and a home equity loan, essentially a second mortgage with a fixed rate.
Where to get a home equity loan
Traditionally, you got a a HELOC or home equity loan from your friendly local bank. While many still offer them, there are several other types of institutions that provide them now, as well.
Banks like Bank of America, Citizens Bank and Fifth Third Bank have home equity offerings. You might especially benefit from going to them if you’re already a customer. Some banks such as Citi and Wells Fargo halted their home equity business in the pandemic and have yet to restart, so check before you apply.
These are local, national or regional, and driven by members aligned by factors like location or profession. Some bigger examples include Alliant Credit Union and PenFed Credit Union.
If you bought your home with a mortgage lender like CrossCountry Mortgage or Lower, you might also choose to work with them. Companies like Guaranteed Rate and Rocket Mortgage also now offer home equity products.
Online lenders include established operations like Discover and newer players like Figure. Spring EQ also allowsalso, which allows some borrowers access up to $500,000 in equity.
How to choose a home equity loan lender
With many more options for a home equity loan beyond the bank, it’s best to compare different types of lenders so you’ll have a sense of which offer the lowest rates and fees and the most convenience or perks.
“You should look for a lender who is upfront with you about the entire loan process, especially the requirements needed to get a loan,” says Rob Cook, vice president of marketing, digital and analytics for Discover Home Loans, adding “costs and fees are an important consideration for anyone who is looking for a loan.”
If you’re getting a home equity loan, know exactly how much you need to borrow; don’t just accept whatever the lender is willing to offer you, which might be more than you requested. Remember: You’re tapping your equity — an asset — and you’ll need to be able to repay the loan or risk losing your home.
Make sure you understand your all-in expenses — home equity loans, like primary mortgages, have closing costs — before committing to an offer. Many home equity lenders may offer attractively low rates but charge higher fees.
Requirements for home equity loans
The lending criteria for home equity loans vary by financial institution. However, here’s an idea of what most will expect from homeowners looking to borrow against their equity:
- Amount of equity in home: At least 15 to 20 percent
- Credit score: Mid to high-600s, although minimum 700 is preferred
- Debt-to-income ratio: No more than 43 percent, although some lenders allow DTIs of up to 50 percent
- Income: Sufficient verifiable income to make timely loan payments
- Loan-to-value ratio (LTV): No more than 85 percent
- Payment history: Demonstrated credit history/record of timely payments on outstanding debts
Check with the lenders you’re considering as their requirements may differ from these general eligibility guidelines. And of course, they’ll evaluate your particular financials, too, in the final loan terms they offer you.
With additional reporting by Allison Martin