Where to get a home equity loan: finding the best lender for your needs

The average American mortgage-holding homeowner is sitting on a little over $300,000 in available equity, according to property information and data analyst CoreLogic — a substantial ownership stake, and up roughly $100,000 since pre-pandemic days. To enable them to tap into that equity, obtaining cash for different needs, many lenders offer home equity lines of credit (HELOC) or home equity loans.

Traditionally, you sought such home equity financing from your friendly local bank or savings and loan association. Now, though, there are several other types of institutions that provide them as well. Home equity products have 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

Most lenders in the mortgage business provide home equity financing, but not all products may be available in all states (especially when it comes to  HELOCs). Conversely, there are some firms that specialize in home equity loans and HELOCs, but don’t do purchase mortgages.

Banks

While a few halted their home equity offerings during the pandemic, many multi-state retail banks like Bank of America, Citizens Bank and PNC Bank feature home equity-related financing. In fact, eight out of the 10 largest home equity lenders are traditional banking institutions (the aforementioned trio are the top three on the list). You might especially benefit from going to one if you already have an account or do business there.

Advantages of applying for a home equity loan from a bank:

• Institutions often offer discounted rates or suspend fees when the borrower is a current customer.
• They offer a variety of services and products, which can lead to convenience and savings — making the monthly loan payment from an in-house checking account, etc.
• You can visit a physical branch to apply or meet with a loan officer to discuss your funding needs — a significant upside if you’d prefer not to solely rely on phone or chat support.

Credit unions/savings and loan associations

Credit unions and savings and loans (aka “S&Ls” or thrifts) also offer home equity products. Though some are publicly traded companies, most are private, not-for-profit financial institutions with a cooperative structure: They are owned by their “members.” Originally, these members were aligned by factors like location, profession/industry or employment by a particular company. Nowadays, though, many operate on a regional or national level, basically opening up membership to anyone. Alliant Credit Union, Third Federal Savings and Loan, and PenFed Credit Union are three prominent players of this nature in the home equity financing field.

Advantages of applying for a home equity loan from a credit union or an S&L:

• They are often smaller institutions, existing to meet the needs of their member-owners. Service is often more personalized and hands-on.
• As not-for-profits, they have no commercial ax to grind, which often translates to lower fees, better rates or other more attractive terms.

Mortgage lenders

If you bought your home with a mortgage lender like CrossCountry Mortgage, Guaranteed Rate or Lower, you might also find home equity financing with them. Online mortgage companies like Rocket Mortgage also now offer home equity products.

Advantages of applying for a home equity loan from a mortgage lender:

• Mortgage lenders generally feature a broader range of home equity loans, which means you could have more options to choose from.
• Mortgage lenders specialize in home financing. So, they have extensive knowledge of the market and can offer expert advice tailored to your situation.

Online-only lenders

Online specialists in home equity financing include established operations like Discover and newer players like Figure. Spring EQ also allows some borrowers to access up to $500,000 in equity.

Advantages of applying for a home equity loan from an online-only lender:

• Online lenders often offer faster approvals and funding times. Their speed is particularly beneficial if you need the money to cover emergency expenses.
• You may find more competitive interest rates with online-only lenders. They have lower overhead costs compared to brick-and-mortar banks, and can pass these cost savings on to you.

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 use their property as collateral:

• Amount of equity in home: At least 15 to 20 percent
• Credit score: Mid to high-600s, although a minimum 700 is preferred
• Debt-to-income ratio (DTI): No more than 43 percent, although some lenders allow up to 50 percent
• Income: Sufficient verifiable income to make timely loan payments (especially in light of DTI)
• Loan-to-value ratio (LTV): No more than 85 percent [for all home-based debt]
• Payment history: Demonstrated credit history/record of timely payments on outstanding debts

Of course, any lender will evaluate your particular financials, too, in the final loan terms they offer you.

Required documents when applying for a home equity loan

Here’s what you’ll typically need to provide to apply for a home equity loan:

• Driver’s license, state-issued ID or passport
• Social Security number
• Your employer’s contact information
• Two most recent pay stubs and W-2 statements
• Employment history and dates
• Proof of income for the past two years (i.e., tax returns and 1099s if applicable)
• Documentation to prove you own the property
• Declarations page from your homeowners insurance policy

How to choose a home equity loan lender

Although you can always start with the lender who provided your primary mortgage, that’s not your only option — or even your best option. With many more sources 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.

And transparency, too. “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, CMO Discover Home Loans.“Costs and fees are [also] an important consideration for anyone who is looking for a loan,” he adds. 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 lower rates but charge higher fees.

Finally, if you’re getting a home equity loan, know exactly how much you need to borrow (or, in the case of a HELOC, the maximum amount you’ll probably need0; don’t just accept whatever the lender is willing to offer you, which might be more than you requested. More debt incurs more interest, which means bigger monthly payments. Remember: You’re tapping your home equity — an asset — and you’ll need to be able to repay the loan or risk losing your home.