Where To Get a Home Equity Loan

Preparing for the Home Equity Application Process

Person working on paperwork
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A home equity loan lets you take advantage of your home equity to borrow a lump sum of money that can pay for things like a home improvement project, college tuition, medical bills, or business startup costs. Home equity represents the difference between what your home is worth and what you still owe on your mortgage. Your home serves as collateral for this type of loan, which also is known as a second mortgage, and typically comes with a fixed interest rate.

You can get a home equity loan from a bank, credit union, mortgage company, or online lender, although some lenders have ceased offering this product due to the financial climate as of this writing. Learn who still offers home equity loans, how to shop around, and ways to prepare and apply for a home equity loan.

Key Takeaways

  • Home equity loans allow you to use the equity in your home to access funds that can be used toward home improvement expenses, college tuition, medical bills, etc.
  • Banks, credit unions, mortgage companies, and online lenders offer home equity loans, but there are quite a few that do not.
  • Shopping around for a home equity loan can help you score a lower interest rate and other favorable lending terms.
  • The annual percentage rate (APR) is perhaps the most important factor to consider when taking out a home equity loan.

Who Offers Home Equity Loans?

Home equity lenders include banks, credit unions, mortgage companies, and online lenders. Some specialize in providing home equity loans to borrowers with less-than-ideal credit.

Not all financial institutions offer home equity loans, however. Some offer only home equity lines of credit (HELOCs), and others have discontinued their home equity lending altogether, including some of the biggest names in financial services:

  • Bank of America
  • Capital One (discontinued all home loans)
  • Chase Bank
  • Citi (temporary halted fixed-rate home equity loans as of March 2021)
  • PNC Bank
  • Truist
  • Wells Fargo

Many banks have stepped away from the home equity market, citing economic uncertainty. Home equity loans are often considered risky because in a foreclosure, the lender that made the primary mortgage is the first in line to get paid.

Nonetheless, a number of financial institutions will still vie for your home equity loan business, presenting varied offerings in loan amounts, repayment term length (​​10 through 30 years, for instance), and interest rates.

How To Compare Home Equity Loans

It’s important to shop around for a home equity loan to find the best terms for you. Here’s how to get started:

  • Inquire about interest rates: This ranks as the most important aspect of comparing home equity loans. Specifically, ask about the annual percentage rate (APR), which includes the interest rate you’ll be charged along with fees and other lending expenses.
  • Visit with a lender you’re already doing business with: They may be open to giving you a discount on the interest rate or fees if you’re a loyal customer.
  • Seek referrals: Ask friends and relatives what lender they use and what their experiences were like.
  • Look into prepayment penalties: Some lenders assess a prepayment fee if you pay off a home equity loan before the end of the payoff period.
  • Negotiate with at least two lenders: When lenders are competing for your business, they might be willing to lower the interest rate, reduce fees, and offer other incentives.
  • Check your credit: Get copies of your credit reports and examine your credit scores to help determine your financial health. Lenders will closely review this information during your loan application process.

By checking your credit report before you apply for a loan, you can fix any errors that might be weighing down your credit score; or you can try paying down your debt to boost your score and make you a more attractive borrower.

Home Equity Loan Rates

When you’re shopping for a home equity loan, one of the key pieces of information you’ll want to find out is the APR. This rate depends on factors such as your income, your credit history, and the value of your home.

The range for APRs offered by home equity lenders varies widely. On average, the interest rate for a home equity loan is typically higher than the average rate for a traditional mortgage but lower than that of a HELOC, personal loan, or credit card.

Since APRs for home equity loans fluctuate frequently, your best bet is to keep an eye on interest rates by regularly checking websites of banks, credit unions, mortgage companies, or online lenders you’re considering.

The rate for a home equity loan is often fixed, which means it will remain the same throughout the life of the loan.

How To Apply for a Home Equity Loan

Once you’ve settled on a home equity lender, it’s time to get ready for the application process. Here are six steps to take when preparing to submit your application:

  1. Review your finances to get a sense of whether you can afford to make monthly payments on a home equity loan. The payoff period typically lasts five to 30 years.
  2. Figure out how much money you want to borrow. Use a loan calculator to help you determine how payments will be calculated on the home equity loan you receive.
  3. Set realistic borrowing expectations. Many lenders will permit you to borrow up to 80% of the equity in your home.
  4. Aim for a credit score that will be high enough to qualify for a loan. Most home equity lenders want you to have a credit score of at least 620.
  5. Get your paperwork in order. The lender will request an array of documents from you, such as recent paystubs, W-2 tax forms, bank statements, and investment statements, along with proof of homeowners insurance.
  6. Anticipate an appraisal. The lender may order an appraisal to determine the market value of your home.

Realize that your home equity loan application may be denied. This may happen due to an insufficient amount of home equity, a credit score that’s too low, or a poor history of paying bills. The lender is supposed to disclose the reasons why they denied your application. If this happens, use that information to help you get things in order to eventually qualify for a home equity loan.

Frequently Asked Questions (FAQs)

How much can I borrow with a home equity loan?

Generally, a lender will approve a loan that lets you borrow as much as 80% of the equity in your home, minus the amount you still owe on your original mortgage. The minimum amount of money available with a home equity loan often is $10,000.

Which is better—a refinance or a home equity loan?

Deciding whether a refinance or a home equity loan is a better option depends partly on how you plan to use the money. Are you looking for cash to pay for a big expense such as a home improvement project or a child’s tuition? Then your best bet might be a home equity loan. But if you’re trying to reduce your monthly mortgage payment or pay off the mortgage more quickly, you might want to refinance.

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Article Sources

  1. Citibank. “Temporary Home Equity Changes.”

  2. Discover. “Steps in the Home Equity Loan Application Process.”

  3. Federal Trade Commission. “Home Equity Loans and Home Equity Lines of Credit.”

  4. Consumer Financial Protection Bureau. “​​Buying a Home? The First Step Is To Check Your Credit.”

  5. Discover. “How Home Equity Loan & HELOCs Work: Rates, Terms and Repayment.”

  6. The Associates Home Loan of Florida. “How To Qualify for a Home Equity Loan With Bad Credit.”

  7. Navy Federal Credit Union. “Home Equity Loans.”