If you're a homeowner and need cash, it may sound tempting to tap into your home equity, especially if you don't have a job. After all, home equity loans—money you borrow against the paid-off portion of your home—are usually cheaper than other forms of debt such as credit cards and even personal loans, and they may be easier to qualify for, too.
However, that doesn't mean there aren't any requirements to get a loan. It is possible to get a home equity loan while you're unemployed, but you still need some form of income to qualify. There are things you can do to make it more likely you'll be approved, however.
- You don't necessarily need a job to get a home equity loan, but you will need some form of regular income.
- If you're not able to repay your home equity loan, your lender can force you to sell your home.
- You can boost your odds of approval by finding a co-signer, increasing your income, and/or paying down debt.
Can You Get a Home Equity Loan With No Job?
It's possible to get a home equity loan if you don't have a job. However, keep in mind that not having a job isn't the same thing as not having any income.
Home equity loan lenders have two ways to get their money back: Either you pay off the loan, or they force you to sell your house to repay them. If you're not able to make regular payments with some form of income, you risk losing your home.
If you're not earning money from a job—and many people aren't, such as people with disabilities, retired folks, and stay-at-home caretakers—lenders will want to see that you're earning a regular, dependable income from elsewhere. That could take the form of a veteran's pension, a spouse's employment income, government assistance, alimony, or some other type of income.
The other income you earn will factor into other requirements to get a home equity loan. Although the details vary by lender, that will include the following factors.
You'll need to have a certain amount of equity in your home before you're eligible to take out a home equity loan. Think of equity as how much of your home you actually "own," as opposed to how much you still owe on your mortgage. For example, if your home is worth $200,000 and you still owe $100,000 on your mortgage, then you have 50% equity in your home.
Most lenders will only let you borrow an amount up to 80% to 85% of the equity in your home, meaning your actual loan amount will be smaller than your home's value. For example, if you still owe $100,000 on a home worth $200,000, then you may be able to borrow up to $60,000 ($200,000 x 80%, minus your current mortgage balance of $100,000).
A bigger factor for people without regular jobs may be requirements around their debt-to-income ratio. This is the ratio of all your monthly debt payments to your gross monthly income. For example, if you have to pay $100 per month toward debt and you're earning $1,000 in income, your debt-to-income ratio is 10%.
Most home equity loan lenders limit you to a debt-to-income ratio of 43%, although this can vary by lender. If you're above that—meaning you're paying a big chunk of your income toward debt each month—then you'll need to either pay off some of the debt to decrease your monthly payments or find a way to increase your income.
How To Get a Home Equity Loan While Unemployed
Not having a job can count against you when you're applying for a home equity loan, but it doesn't automatically disqualify you. Instead, here are some things you can do to tip the balance in your favor.
Find a Co-Signer
A co-signer is someone who agrees to be held equally responsible for the loan. You can take primary payment responsibilities, or your co-signer can be the one to make the payments. For example, an employed spouse may make payments for a stay-at-home spouse.
Either way, it's important to have a discussion and be clear about who makes the payments, when, and what happens if they're not able to do so. If you agree to make the payments and you're not able to do it, for example, it could hurt your and the co-signer’s credit scores, and force your co-signer to pay off your loan for you.
Improve Your Credit Score
If you don't have a good credit score (670 or above), you may be able to boost your odds of approval by working on ways to increase your credit score. Building your credit is generally a long-term strategy, but there are many things you can do to increase your credit score quickly.
Increase Your Income
Getting a job is often easier said than done. But if you have the ability to do so, it can make getting a home equity loan much easier. If not, there are other ways to increase your income, such as making sure you're getting all of the benefits you're eligible for, or finding a side hustle or part-time job that works for you.
Pay Down Debt
If your debt-to-income ratio is a little too high, you may have better luck in getting approved for a home equity loan by paying down your debt. Lowering your monthly outgoing payments will improve your debt-to-income ratio, even if you don’t increase your income. If you can find the money to pay off a debt, either by cutting back on spending or using existing savings (but not your emergency fund), this strategy may work.
Alternatives To Home Equity Loans if You’re Unemployed
If getting a home equity loan isn't in the cards for you, there are other options depending on your goals. Here are some other good choices:
- Refinance your mortgage: If your mortgage payment isn't sustainable, refinancing may help. Alternatively, if you need extra money, you may be able to do a cash-out refinance, but you'll still need to prove to the lender that you're able to handle a higher mortgage payment.
- Seek out social services: If you're having trouble making ends meet and you're not in a place where getting a loan is a good idea, try using 211.org. They can anonymously connect you with support services in your area for things like housing assistance and more.
- Talk to a reputable credit counselor: Check with the National Foundation for Credit Counseling to get referred to an affordable and ethical credit counselor who can help you sort out your options and locate assistance.
Frequently Asked Questions (FAQs)
What are home equity loan rates?
Home equity loan interest rates change every day, so it's best to seek an updated resource to know what the current rates are. Remember, if you're unemployed, it may be tougher to qualify for a home equity loan, and even if you do qualify, your rate may be higher than a person with a full-time job.
What can you use the funds from a home equity loan for?
Home equity loans are similar to personal loans in that they can be used for just about anything, including consolidating high-interest debt and paying for living expenses. But it's a good idea to think twice in most cases, because you could lose your home if you default. Many experts recommend only using home equity loans for home repairs and upgrades, since that will increase your home's value.
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