Home Equity FAQs
What is home equity?
How does a home equity loan work?
What credit score do you need to get a home equity loan?
How much can you borrow with a home equity loan?
Are home equity loan rates higher than mortgage rates?
A home equity loan is a type of loan that allows homeowners to borrow against the equity they have built up in their home. It is considered as a secured loan, since the collateral is the value of the home. Our list of lenders can help you compare rates, fees, and other terms to find the right loan for your needs.
Below are some of the best home equity lenders. Compare rates, terms and amounts.
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A home equity loan is a loan that allows homeowners to borrow money using the equity in their home as collateral. The loan amount is based on the difference between the current value of the home and the amount owed on mortgages or liens. Homeowners typically use home equity loans for big expenses like home renovations or big expenses.
You may have heard of home equity loans referred to under a different name, such as:
These all mean the same thing: obtaining a loan against the equity (ownership) you’ve accumulated in your property.
In this loan structure, the borrower’s home equity is used as collateral for the lender. Securing a loan against home equity helps protect the lender since the home can be sold if the loan cannot be repaid. This structure also means lenders often provide more favorable rates than other types of loans.
Borrowers build equity in one of two ways:
Like a traditional mortgage, a home equity loan will have a repayment schedule dictating recurring payments. Also, like a conventional mortgage, these repayments will be composed of principal and interest.
Lenders will typically determine loan amounts based on several criteria. Usually, the better the borrower’s financial position, the higher the loan amount and the more favorable the rate they will obtain.
In addition to considering a borrower’s credit score and payment history, lenders will usually determine a loan amount in part based on a combined loan-to-value (CLTV) ratio.
The metric represents the ratio of all secured loans on a property relative to the property’s entire value. Lenders typically lend to borrowers with CLTV ratios of no more than 80%.
In other words, lenders usually limit the loan to 80% of the property value.
For example, a $100,000 property with a CLTV ratio of 80% would imply the loan size is $80,000 (80% of $100k).
There are several elements to consider when deciding on a lender, including:
Borrowers will need to assess a myriad of factors when choosing a lender. For most borrowers, a low-interest rate will be one of the main drivers of their decision. For others, quality customer service is essential and may trump another lender with a slightly lower rate.
Ultimately, the appropriate lender will depend on the factors important to the borrower.
Lender | Loan Amount | Loan Term | APR Range | Best For |
Discover | $35,000 – $300,000 | 10 to 30 years | 7.49% – 13.99% | Low Rates |
U.S Bank | $15,000 – $750,000 | Up to 30 years | Starting at 7.95% | Low fees at a national bank |
KeyBank | $25,000-$250,000 | 1 to 30 years | 8.03% – 12.93% | Homeowners with limited equity |
Spring EQ | Up to $500,000 | Not specified | Not specified | Fast funding |
Flagstar Bank | $10,000 – $1,000,000 | 10 to 20 years | Starting at 7.99% | Flexible loan terms |
BMO Harris Bank | $25,000 – $150,000 | 5 to 20 years | starting at 7.39% | Different Loan Options |
Frost | Starting at $2,000 | 7 to 20 years | 5.34% – 5.64% | Low fees at a regional bank |
Connexus Credit Union | Starting at $5,000 | 5 to 20 years | Starting at 7.96% | Branch network |
Regions Bank | $10,000 – $250,000 | 7 to 20 years | Starting at 6.38% | Customer experience |
Market Average | Rate Average | Rate Range |
Boston | 7.27% | 5.00% – 8.48% |
Chicago | 9.04% | 8.01% – 10.86% |
Detroit | 9.60% | 7.20% – 10.80% |
New York Metro | 8.50% | 8.49% – 8.50% |
Philadelphia | 7.55% | 5.49% – 8.49% |
Market Total | 8.00% | 5.05% – 10.88% |
Obtaining a home equity loan can be broken down into four simple steps:
Before applying for a home equity loan, consider checking your credit score to confirm if you’re likely to qualify. This step will also help determine the interest rate you might expect to receive. Typically, lenders require credit scores of 620 and up.
Compare available options before deciding on a lender to ensure you can find the institution that can best fulfill your needs.
Lenders require several documents to be completed and provided, like pay stubs and tax returns.
Once the loan is approved and signed, the lender will release the funds to you. This stage can range from two weeks to upwards of two months.
The requirements for eligibility can vary widely between lenders. Still, by and large, the following criteria can typically be expected:
People take home equity loans for a variety of reasons, including:
In general, a home equity loan can be a good option for borrowers who need a large sum of money and have built up equity in their homes. However, it’s important to carefully consider the risks and benefits of a home equity loan before applying, as failure to repay the loan could result in foreclosure on your home.
What is home equity?
How does a home equity loan work?
What credit score do you need to get a home equity loan?
How much can you borrow with a home equity loan?
Are home equity loan rates higher than mortgage rates?