Home equity loans can be helpful when a homeowner needs to make home improvements, but they can also assist with other expenses like consolidating debt or paying college tuition. What is a home equity loan, exactly? This type of financing acts as a second mortgage that converts accumulated home equity into funds that can be used at the homeowner’s discretion. Home equity loans can be a great way to take advantage of the ownership stake that homeowners have built up in their own property with each mortgage payment they make.
How does a home equity loan work? After building up sufficient equity in their home—the exact amount may vary from lender to lender—homeowners can take out a loan that cashes in some of that equity and gives them money to pay for home renovations, consolidate debt, cover medical bills, make large purchases, or cover the costs of any number of expenses. Because the loan counts as a second mortgage, there’s no need to refinance the original home loan. That does mean borrowers will need to make an additional loan payment each month, however, and the home equity loan will also use the borrower’s house as collateral. Under the right circumstances, a home equity loan can free up funds to help homeowners pay for expenses that might otherwise be too costly to manage.
Taking out a loan is no small decision, and it’s crucial to know the ins and outs of all available options. The loan terms offered by lenders can vary somewhat significantly, and each company will likely have its own criteria for determining a borrower’s eligibility. This guide will break down all the necessary information and outline some of the best home equity loans available to help homeowners find the right fit for their circumstances.
- BEST OVERALL: U.S. Bank
- RUNNER-UP: Flagstar Bank
- BEST HELOC: Bank of America
- BEST FOR MILITARY MEMBERS: Navy Federal Credit Union
- ALSO CONSIDER: Discover
What Is a Home Equity Loan, and How Does It Work?
A home equity loan allows homeowners to borrow against the equity that they have built up in their home. So what is home equity? When someone buys a home, they usually don’t pay for it all at once. Instead, they put down a deposit, then pay the rest off over time with monthly mortgage payments. Home equity refers to the percentage of the home that is paid for, or the amount that the homeowner owns, at any given time. Here’s how to calculate home equity: Subtract the amount that is owed on the home from the market value of the home. The difference is the amount that has been paid for, or the equity.
Once a homeowner builds up equity, one way they can access that pool of money is by applying for a home equity loan. Most lenders require that borrowers have at least 20 percent equity in the home in order to qualify. The loan can be used at the homeowner’s discretion for home improvement costs, travel, emergency funds, tuition, or anything else they choose to use it for.
What to Consider When Choosing One of the Best Home Equity Loans
When shopping for one of the best home equity loans, homeowners will want to consider significant factors like the loan amount, loan term, and interest rate. Borrowers will also want to note the requirements for a home equity loan such as minimum credit score, fees, options for preapproval, and loan closing time frame.
For most home equity loans, the repayment period, or loan term, can range between 5 and 30 years. A borrower will pay fixed monthly payments for the life of the loan until it is paid in full. It’s essential to check the loan agreement terms to see if the lender charges a penalty for paying off a mortgage or home equity loan early. If it does, borrowers may need to compare the penalty amount to the amount of interest they would save by paying off the loan early to see which option provides the most savings.
Home equity loan amounts largely depend on how much equity a homeowner has in their property. A quick way to figure that out is to subtract the remaining mortgage balance from the property’s current market value. Most lenders will not offer a home equity loan for more than 80 percent of a home’s value. While this is a critical factor in determining a borrower’s loan amount, the lender also will review the borrower’s income, credit score, and credit history. Unlike a home mortgage loan, a borrower won’t need a down payment with a home equity loan. However, borrowers may need to pay closing costs and other lender fees when taking out a home equity loan.
As can be expected, in order to qualify for a home equity loan, a borrower must have built up a certain amount of equity in their home. While the exact amount of equity required can vary depending on the lender, in most cases homeowners will need to have paid 20 percent of their mortgage. For example, if the home is worth $550,000 and the lender requires 20 percent equity, the borrower will need to have $110,000 in equity, or owe no more than $440,000, in order to qualify for a loan.
Minimum Credit Score
Homeowners wondering how to get a home equity loan may want to consider the various eligibility criteria that lenders may require. For instance, lenders look at a borrower’s credit score to gauge how responsible they are with managing debt. A history of late payments, bankruptcy, or foreclosure on a borrower’s credit report can be a red flag to lenders. Lenders often require prospective borrowers to maintain a minimum credit score to receive a home equity loan approval, although that minimum requirement will often vary across different companies. That being said, it’s unlikely that borrowers will be able to qualify for a home equity loan with bad credit. Credit scores also can affect the interest rate a borrower receives on a home equity loan. In most cases, the better a borrower’s credit score, the better the interest rate they will receive.
Another factor lenders will review as part of a home equity loan application is the debt-to-income (DTI) ratio. A borrower’s DTI is determined by adding up all their monthly debts and dividing that number by their gross monthly income. Lenders use this number to assess a borrower’s ability to manage existing debt and repay a home equity loan.
Most lenders want to see a DTI of no more than 43 percent; if a borrower’s DTI is higher, they may be viewed as potentially having trouble repaying the debt. A lender may make an exception for borrowers with a high DTI ratio, so it may be worth checking minimum DTI requirements when weighing the benefits of the best home equity loan providers. That being said, in some cases, it may be best for borrowers with high DTI ratios to work on paying down their debt before applying for a home equity loan. Doing so can help boost their eligibility prospects while improving their financial situation.
Combined Loan-to-Value Ratio
Combined loan-to-value ratio, or CLTV, is a metric used by lenders to determine the amount taken out in loans on a property compared to the total property value. Unlike loan-to-value ratio (LTV), which only accounts for the mortgage balance, CLTV includes all loans, including any existing second mortgages as well as the loan that is being applied for. CLTV can help home equity loan lenders determine the amount of risk involved in lending to a homeowner and the homeowner’s likelihood of defaulting on the loan. A high CLTV ratio is considered to be risky, and most lenders will not consider lending to borrowers whose CLTV exceeds 80 percent.
Borrowers often focus on interest rates when comparing home equity loan rates, but a company’s annual percentage rate (APR) may be a more accurate representation of the total cost of taking out a home equity loan. In addition to accounting for interest, the APR factors in the cost of any mortgage points purchased as well as financing charges such as lender fees. These fees could include application, origination, processing, underwriting, appraisal, recording, broker, and other lender fees. As such, it can be helpful to weigh APR alongside interest rates as even the best home equity loan rates may not fully account for the total cost of financing.
When talking with a lender regarding a home equity loan, a borrower can attempt to negotiate to have their fees or interest rates reduced. They can also take their business elsewhere if another lender offers better loan terms.
Preapproval means that borrowers can ascertain how much they’re eligible to borrow from a lender before signing a loan agreement. A borrower will want to find out how much they can qualify for when shopping for a home equity loan to make sure they get the funds they actually need. Once a borrower has been preapproved, they will have a better idea of the interest rates they can expect on the loan. Preapproval typically requires proof of employment, income, and a Social Security number for a credit check. The lender’s credit report request will be listed as a hard inquiry, which could result in a dip in the borrower’s credit score. Fortunately, any credit dip usually bounces back quickly. Getting preapproved can be useful when comparing loan terms and rates from different lenders. Each company may have its own way of processing preapproval requests—some may handle preapproval entirely online, while others may require prospective borrowers to speak directly with a loan officer. Preapproval timelines can vary as well, so it may be worth borrowers asking each lender how to get preapproved for a home loan when vetting the best home equity loan providers.
To obtain a home equity loan, a borrower must complete an application and submit supporting documents. This application requires personal information, including a Social Security number; proof of income and employment; and other financial records, including pay stubs, bank statements, tax returns, and mortgage paperwork. The stronger a borrower’s economic foundation, the better the interest rate they will receive. Digital mortgage application workflows have become far more common, and lenders may allow borrowers to go through the entire application process online. Some borrowers may prefer a more hands-on application experience by working directly with a loan officer, either in person or over the phone. Approval and closing time frames can vary from lender to lender as well.
Closing Costs and Fees
Once a borrower has provided all the necessary information and paperwork for the home equity loan application, the lender will process the loan. Depending on the lender, this could take anywhere between 2 and 6 weeks. A borrower also may incur closing costs and fees based on the work needed to process the loan, such as appraisal or recording fees. It’s important for a borrower to review these closing costs and expenses before signing the loan agreement. In addition, the borrower will want to carefully read and review all the loan documents at closing to make sure all the terms are what they agreed upon with the lender.
While it is most common for homeowners to take out a home equity loan on their primary residence, many lenders also offer equity loans on second homes and investment properties. However, these types of properties are considered to be more risky for lenders because borrowers have less at stake than they do for their primary residence and are therefore at a higher risk of defaulting. For this reason, there may be different or additional requirements for taking out home equity loans on non-primary residences. Borrowers may find it more difficult to find a lender willing to work with them in this scenario, and interest rates are typically higher.
Some homeowners choose to use a home equity loan from their primary residence to purchase a secondary home or investment property. While this can be a convenient way to fund a new investment, borrowers will want to note that in doing so they will be responsible for no less than three mortgage payments (their primary mortgage, their home equity loan, and the mortgage payment on their secondary home or investment property).
When considering any lender, borrowers will want to evaluate the company’s customer service. Are representatives helpful and willing to work with borrowers to determine the best options? Will they be reachable to answer questions or address concerns down the road? One way for borrowers to find trustworthy companies is through personal recommendations—they can ask friends and neighbors if they are willing to share their experiences. Otherwise, online customer reviews can also be a useful resource for borrowers to get an idea of the company’s reputation.
HELOC vs. Home Equity Loan
Although both home equity loans and home equity lines of credit (HELOC) convert home equity into funds that are disbursed to the homeowner, they function very differently. A home equity loan typically has a fixed interest rate, loan amount, and loan term. A borrower makes monthly payments on it like they would with their mortgage. Most lenders limit the loan amount to 80 percent of the home’s equity, although other factors also will affect the actual loan amount.
What is a HELOC in comparison? A HELOC is a type of financing vehicle that’s based on home equity, but it works more like a credit card. A borrower is approved for a maximum amount of credit, against which they can borrow whenever they need to. The borrower repays the HELOC by making payments on the amount borrowed, not the total amount of credit. In addition, unlike a home equity loan, a HELOC typically features variable interest rates, which can affect monthly payments and the overall interest owed. Despite their differences, both home equity loans and HELOCs can be great ways to get home equity out of a house.
Our Top Picks
To help homeowners find the best home equity loans, we have researched and compiled home equity loan terms and information from several lenders.
Why It Made the Cut: U.S. Bank offers more flexible borrowing limits than many other lenders, which could make it easier for borrowers to get the loan amount they need.
U.S. Bank offers a broad range of loan amounts for eligible borrowers, starting at $15,000 and topping out at $750,000. California residents may even qualify for loan amounts as high as $1 million on a U.S. Bank home equity loan. The financial institution doesn’t charge closing costs, either, which may help borrowers save on the total cost of their home equity loan.
Borrowers with fair or poor credit may want to note that interest rates on their home equity loans may be higher with this lender. U.S. Bank’s home equity loan rates are easily accessible and regularly updated, though, so borrowers can get an idea of what they might have to pay on a home equity loan before applying. Borrowers can also shave 0.5 percent off their interest rate by taking advantage of available discounts for setting up automatic payments from a U.S. Bank account. The lender’s site also maintains a large library of educational resources to help homeowners learn about their home equity financing options so they can make a more informed decision that best meets their needs.
- Loan term: 5 to 30 years
- Loan amount: $15,000 to $750,000
- Minimum credit score: 660
- APR: Starting at 7.95 percent
- Rates are published, up to date, and accessible
- Flexible borrowing limits between $15,000 and $750,000
- Rate discounts for automatic monthly payments
- No closing costs
- Extensive online library of educational content
- Rates may not be as favorable for borrowers with average or below-average credit scores
Why It Made the Cut: Flagstar Bank offers high maximum loan limits for eligible borrowers, potential discounts on interest rates, and financing options that require no closing costs, making it a great option for many homeowners.
Homeowners looking to take out a large home equity loan may find the right match with Flagstar Bank. The lender offers home equity loans as high as $1 million, allowing eligible borrowers to extract more equity from homes with higher property values. Home equity loans are only available through Flagstar’s retail banking branches, however, which are limited to four states: California, Michigan, Indiana, and Wisconsin. On the other hand, Flagstar’s home equity loans are available for a wide range of home types, including modular homes and 1- to 4-unit residential homes. This could make home equity loans more readily available to borrowers with unconventional homes and residential properties.
Borrowers could also stand to lower the total cost of financing by taking advantage of Flagstar’s automatic payment discount. Customers who enroll in automatic payments can lower their interest rate by 0.25 percent. In addition, Flagstar Bank does not charge closing costs of any kind on home equity loans, so borrowers may save money on their out-of-pocket expenses when taking out a loan with the lender.
- Loan term: 10 to 20 years
- Loan amount: $10,000 to $1 million
- Minimum credit score: Not specified
- APR: Starting at 7.79 percent
- $1 million loan amount maximum
- No closing costs
- Rate discounts for automatic monthly payments
- Loan availability for a range of home types
- Home equity loan availability limited to 4 states
Why It Made the Cut: For borrowers interested in a HELOC, Bank of America offers flexible borrowing limits and nationwide branch offices so they can meet with a loan officer in person.
While Bank of America does not offer home equity loans, it does offer a home equity line of credit, which can be a good alternative to a home equity loan for many homeowners. Borrowers draw funds from a Bank of America HELOC for 10 years, making payments on any funds they use. After the draw period ends, they will have 20 years to repay the HELOC balance.
Bank of America offers a high maximum limit—$1 million—so eligible borrowers with significant home equity may be able to access a large revolving line of credit. It also considers alternative credit data, not just an applicant’s credit score, which may help some homeowners with lower credit scores qualify for financing.
This lender’s fixed interest rate option is somewhat unusual for a HELOC and could help borrowers reduce the interest owed during the entire life of their loan agreement. Borrowers can also lower their financing costs by taking advantage of the various discounts available to them. For instance, Bank of America Preferred Rewards members can receive a 0.375 percent discount on their HELOC rate. In addition, borrowers may get a discount up to 1.5 percent on their initial withdrawals.
Accessing funds can be relatively easy as well, as Bank of America offers a variety of ways for borrowers to draw funds from their HELOC, including online, over the phone, or by visiting a local branch. With more options available, borrowers can find the most convenient way to get the funds they need when they need them. If a HELOC is a better choice than a home equity loan, a homeowner can’t go wrong with Bank of America.
- Loan term: 10-year draw, 20-year repayment
- Loan amount: Up to $1 million
- Minimum credit score: Not specified
- APR: Starting at 6.55 percent
- Alternative credit data may be considered at the time of application
- $1 million loan amount maximum
- Fixed-rate loan option
- Multiple rate discount options
- Multiple ways to access funds
- No option for a home equity loan
Why It Made the Cut: Service members may find Navy Federal Credit Union to be a great fit for their home equity loan needs thanks to the lenient loan-to-value requirements and lack of certain lender fees.
Navy Federal Credit Union specializes in providing financial services, including home equity loans, to members of the armed forces. Those financing options can be tailored to the needs and circumstances of service members, helping them secure loans. For instance, Navy Federal offers home equity loans to borrowers with a loan-to-value (LTV) ratio as high as 100 percent. Such lenient LTV ratio standards can make it easier for borrowers with less equity to qualify for this type of loan. That’s especially true for service members with VA loans who were not required to make a down payment when obtaining their mortgage.
Because Navy Federal Credit Union exclusively caters to active and former service members, as well as their families, borrowers who do not fit this criteria will not qualify for a home equity loan. It’s also worth noting that credit union members may be required to pay closing costs on loan amounts up to $250,000. That being said, borrowers’ out-of-pocket costs could still be quite low in some cases because Navy Federal does not assess application, origination, or annual fees on its home equity loans.
- Loan term: 5 to 20 years
- Loan amount: $10,000 to $500,000
- Minimum credit score: Not specified
- APR: Starting at 6.64 percent
- Relatively high loan-to-value ratio at 100 percent
- No application, origination, or annual fees
- Credit union membership limited to service members and their families
- Customers may be required to pay closing costs
Why It Made the Cut: Discover has a relatively low minimum APR, fast closing time frame, limited fees, and high loan-to-value ratio, meaning borrowers can borrow an amount closer to their home’s value.
Discover offers a lot to like for borrowers applying for a home equity loan. While its minimum credit score requirement of 620 is on par with other lenders, it has a much higher loan-to-value ratio—90 percent instead of a standard 80 percent—so homeowners can potentially borrow an amount much closer to their home’s value. Discover caps home equity loan amounts at $300,000, which may limit how much homeowners who have accumulated significant equity can borrow from the lender. However, that maximum loan amount may be more than enough to finance home renovations, consolidate debt, or pay for other major expenses.
Borrowers who choose Discover may want to take note of the $500 prepayment penalty if they pay off the full loan amount early. That being said, residents in several states—Connecticut, Minnesota, New York, North Carolina, Oklahoma, and Texas—are not required to pay this penalty regardless of how quickly they repay their home equity loan.
The minimum APR for Discover home equity loans is relatively reasonable for this type of loan, and there are no application, origination, or appraisal fees. Combined, these features can help eligible borrowers lower their total financing costs, and potentially make Discover a top choice for home equity loans.
- Loan term: 10 to 30 years
- Loan amount: $35,000 to $300,000
- Minimum credit score: 620
- APR: 7.49 percent to 13.99 percent
- Relatively high loan-to-value ratio at 90 percent
- No application, origination, or appraisal fees
- Relatively low borrowing cap of $300,000
- $500 prepayment penalty for 36 months after closing
Best Overall goes to U.S. Bank on account of its transparent rates, discount opportunities, and wide range of available loan amounts. Flagstar Bank earned Runner-Up because eligible borrowers can take advantage of higher loan amounts and potential rate discounts without paying any closing costs.
How We Chose the Best Home Equity Loans
To determine which lenders offer the best home equity loans, we reviewed a number of factors for home equity loans, including minimum and maximum loan amounts, loan terms, interest rates, prequalification and closing times, minimum credit score requirements, loan-to-value ratios, closing costs, customer service, company reputation, and lender fees. We also looked for lenders with a nationwide footprint and noted whether or not they had brick-and-mortar locations for borrowers who prefer to speak with a loan officer in person.
Before You Choose One of the Best Home Equity Loans
When searching for one of the best home equity loans, borrowers may want to shop around to find the best loan terms for their financial situation. Not every home equity loan lender will be the right choice for every scenario. It can be helpful to check with at least three different lenders and carefully compare their loan terms to ensure they are equitable regarding loan amounts, loan length, interest rates, closing costs, fees, and minimum credit score requirements.
As borrowers vet lenders, they will want to give each one the same information so the lenders can evaluate their eligibility and qualifications on the same basis. Ideally, borrowers will try to get loan offers on the same day for the best comparison; interest rates change frequently, so loan offers even just a few days apart could be vastly different due to shifting interest rates.
Cost of Choosing One of the Best Home Equity Loans
As a borrower shops around for a home equity loan, they will want to carefully review how much they will pay in fees and closing costs. Some lenders have minimal or no fees, but that won’t always be the case. A borrower will also need to review interest rates to see which lenders offer the best home equity loan rates. In some cases, borrowers may find that other types of financing are a better fit for their circumstances. A homeowner looking to finance home renovations may want to consider all of their options for home improvement loans before getting a home equity loan. Consulting a home equity loan calculator can help borrowers decide if this type of financing is right for them.
The Advantages of Using One of the Best Home Equity Loans
Using one of the best home equity loans to pay for large expenses could be the best financial tool a borrower has available. With a home equity loan, a borrower could receive a lower rate than with other financial tools such as a personal loan or credit card. In addition, because the borrower’s property is used as collateral to secure a home equity loan, it could be easier to qualify for the home equity loan than other types of financing. And with a home equity loan, a borrower may get a longer loan term for repayment, making it easier to afford monthly payments and pay off the loan in full. Some additional advantages of a home equity loan include:
- Fixed interest rates for the life of the loan
- Possible tax-deductible interest
- Funds disbursed as a lump-sum cash payment
Alternatives to the Best Home Equity Loans
Home equity loans are a popular choice for homeowners; however, they may not be the best choice for everyone. It may be worth considering home equity loan alternatives such as a home equity line of credit (HELOC) or cash-out refinance before making a final decision.
|Home Equity Loan||HELOC||Cash-Out Refinance|
|One-time lump sum||Ongoing credit line||One-time lump sum|
|Interest rates are fixed||Interest rates may be relatively low||Borrower may pay more in interest over time|
|Two monthly loan payments (including mortgage)||Two monthly loan payments|
|Single monthly loan payment|
|Closing costs may apply||Closing costs may apply||Closing costs may apply|
|Borrower risks foreclosure if they default||Borrower risks foreclosure if they default||Borrower risks foreclosure if they default|
Home Equity Line of Credit (HELOC)
A home equity line of credit still allows a homeowner to borrow against their home equity. However, unlike a home equity loan, funds from a HELOC are disbursed on an as-needed basis. Borrowers will only be required to make payments for the funds they withdraw. HELOCs tend to be a good choice for homeowners who anticipate having an ongoing need for funds.
When a homeowner refinances, they are replacing their current mortgage with a brand-new one. A cash-out refinance increases the current loan amount, allowing the borrower to access the difference. One major advantage of a cash-out refinance vs. a home equity loan is that with the former, the borrower only has one monthly payment to keep track of: their new mortgage payment.
With the many considerations to weigh, shopping for a home equity loan can be confusing at times. A borrower will need to research and learn what a home equity loan is and how it works to understand the loan terms before signing on the dotted line.
Q. How do you qualify for a home equity loan?
To qualify for a home equity loan, a borrower needs to meet the lender’s home equity loan requirements for income, minimum credit score, and home equity amount. These requirements often vary depending on the lender, so it may be worth shopping around to see what loan terms may be available. Homeowners who only meet the most basic eligibility requirements may want to consider if a home equity loan is right for them as they may not qualify for the most favorable loan terms.
Q. Is a home equity loan the same as a mortgage?
Although not exactly the same as a primary mortgage, a home equity loan does work as a second mortgage but may have a shorter loan term. As such, a home equity loan uses the borrower’s property as collateral—just like a traditional mortgage. This also means that defaulting on a home equity loan could lead to foreclosure. In addition, borrowers will need to make separate payments on both their original mortgage and their home equity loan each month. A home equity loan payment calculator can help homeowners estimate their monthly payments so they can decide if they have the budget to comfortably afford both.
Q. How long does a home equity loan last?
For most home equity loans, the repayment period, or loan term, can range between 5 and 30 years. Longer loan terms will result in lower monthly payments, which can be easier for homeowners to manage in addition to their other recurring financial obligations. Some borrowers may want to repay their loan more quickly, however, so they can remove that debt as soon as possible and avoid making monthly payments for a longer period of time.
Q. Does a bank do an appraisal for a home equity loan?
Yes, a bank likely will do an appraisal for a home equity loan to determine the home’s current market value. Assessing the true value of a home is critical to determining how much equity a homeowner has and, in turn, how much equity they can pull from the property. As such, it’s very uncommon for lenders to move forward with a home equity loan without scheduling an appraisal first.
Q. What percentage of equity can I borrow?
Many lenders limit a borrower’s loan amount to 80 percent of the home’s equity, but the exact amount may vary depending on the loan provider. Lenders may also cap loan amounts depending on the borrower’s credit score, debt-to-income ratio, and other financial considerations. Unless they have extremely impressive qualifications in that regard, homeowners may not be eligible for the maximum loan amount offered by a lender.
Q. Are there penalties for paying off a home equity loan early?
Some lenders charge prepayment penalties if a borrower pays off the home equity loan early. The purpose of prepayment penalties is to offset—to some degree—any interest the lender may lose out on because a borrower repaid the loan ahead of schedule. Not all lenders assess these kinds of fees, but it may still be a good idea to review loan terms to check for any prepayment penalty that apply to the loan.
Q. What’s the difference between a home equity loan and a home equity line of credit?
When considering a HELOC vs. home equity loan, homeowners will want to note that home equity loans disburse funds as lump-sum deposits while HELOCs provide a revolving line of credit. In addition, home equity loans typically have fixed interest rates as opposed to the variable interest rates that HELOCs often have. Even with the best HELOC rates, it’s possible for borrowers to wind up owing more interest on a HELOC since those rates can change repeatedly and go up or down during the life of the loan.
Q. What’s the difference between a home equity loan and a cash-out refinance?
While a home equity loan functions as a second separate mortgage that homeowners take out in addition to their original home loan, a cash-out refinance replaces the existing mortgage. Home equity loans and cash-out refinances may also offer different interest rates, closing costs, and lender fees. Homeowners may find that it’s easier to qualify for a cash-out refi because they are replacing one mortgage for another rather than add extra debt with a home equity loan. On the other hand, if borrowers are happy with the terms of their existing mortgage, they may not want to refinance their loan and would instead prefer to take out a separate home equity loan.
Q. What are the pros and cons of a home equity loan?
Homeowners who are in a position to take out a home equity loan will find that there are both pros and cons. The following are some of the most important pros and cons of a home equity loan.
- Funds can be used at the borrower’s discretion
- Interest rates are fixed
- Cash is disbursed in a single lump sum
- May be easier to qualify for than other loan types
- Loan may have long repayment terms
- Risk of foreclosure if the borrower defaults
- Borrowers have 2 mortgage payments
- No option to re-borrow
- Interest rates may be higher than those of a HELOC
Q. How can I get a home equity loan?
In general, borrowers will need to carry out the following steps in order to get a home equity loan:
- Check credit score: Borrowers will need to find out if they meet the credit requirements for a home equity loan and make sure that their credit report does not reflect any mistakes or outdated information.
- Calculate equity: The borrower will need to see how much equity they have, and use this information to determine how much money they are eligible to receive.
- Compare lenders: Borrowers will want to check costs and loan requirements from a variety of lenders in order to determine the best fit.
- Apply for a loan: Once a lender has been chosen, the borrower will need to fill out an application.
- Closing: Once the loan is approved, the borrower and lender will close on the loan and the funds will be disbursed.