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November 2022
Jeff Ostrowski covers mortgages and the housing market. Before joining Bankrate in 2020, he wrote about real estate and the economy for the Palm Beach Post and the South Florida Business Journal. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Mark Hamrick is Washington Bureau Chief for Bankrate. He is a national award-winning business and financial news journalist.
At Bankrate, we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for . Bankrate's home equity loan offers help you compare interest rates, fees, terms and more to help you start your search for a loan. The resources below also serve as a starting point for learning about how home equity works and when a home equity loan is a good option.
If you are interested in a home equity loan for paying high-interest debt, financing home renovations or another purpose, learning what the options are and what current rates are can help you find the best option for your situation. Advertiser Disclosure The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where and in what order products appear. This table does not include all companies or all available products. Bankrate does not endorse or recommend any companies. UpdateLoan typeTerms explainedTerms explained Terms explained
Home equity loanA loan that lets you borrow against the value of your home, with funds delivered as a lump sum.Home equity line of credit (HELOC)A variable-rate line of credit based on your home value that you can continually borrow from and pay back over a set time frame.Cash-out refinance With a cash-out refinance, you can use equity for whatever you need like a renovation, paying off credit cards and loans, or even tuition. Here' s how it works
Close X Bankrate guide to choosing the best home equity loan
Why trust Bankrate? At Bankrate, our mission is to empower you to make smarter financial decisions. We've been comparing and surveying financial institutions for more than 40 years to help you find the right products for your situation. Our award-winning editorial team follows strict guidelines to ensure our content is not influenced by advertisers. Additionally, our content is thoroughly reported and vigorously edited to ensure accuracy. Bankrate analyzes loans to compare interest rates, fees, accessibility, online tools, repayment terms and funding speed to help readers feel confident in their financial decisions. Our meticulous research done by loan experts identifies both advantages and disadvantages to the best lenders. When shopping for a home equity loan, look for a competitive interest rate, repayment terms that meet your needs and minimal fees. Loan details presented here are current as of the publication date. Check the lenders' websites to see if there is more recent information. The top lenders listed below are selected based on factors such as APR, loan amounts, fees, credit requirements and broad availability. What are today s average interest rates for home equity loans
LOAN TYPE AVERAGE RATE AVERAGE RATE RANGE Home equity loan 7.44% 6.89% – 8.35% 10-year fixed home equity loan 7.57% 6.17% – 8.57% 15-year fixed home equity loan 7.49% 6.34% – 8.72% Best home equity loan rates in November 2022
The best home equity loan lenders offer a variety of repayment terms, low interest rates and few fees. Each lender will evaluate your eligibility differently, so shopping around can help you find the best offer. Your rate will depend on your credit score, income, home equity and more, with the lowest rates going to the most creditworthy borrowers. LOAN TYPE LOAN AMOUNT LOAN TERM APR RANGE BEST FOR $35,000–$300,000 10 to 30 years 7.49% - 13.99% Low rates $25,000–$150,000 5 to 20 years Starting at 6.94% Different loan options $25,000–$250,000 1 to 30 years 10.44% - 13.33% Homeowners with limited equity Up to $500,000 Not specified Not Specified Fast funding $10,000–$500,000 10 to 20 years Starting at 7.79% Flexible loan terms $15,000–$750,000 Up to 30 years Starting at 6.85% Low fees at a national bank $10,000–$200,000 5 to 20 years 5.79% - 6.29% Customer service Starting at $2,000 7 to 20 years 5.09% - 5.39% Low fees at a regional bank Starting at $5,000 5 to 20 years Starting at 7.45% Branch network $10,000–$250,000 7 to 20 years Starting at 5.25% Customer experiences Best home equity loan for low rates
Overview: Discover is well known for its rewards credit cards, but this national bank also offers a full lineup of banking services, such as checking and savings accounts, personal loans and student loans. We chose this bank as the best for low rates because of its national reach (Discover is available in all 50 states and Washington, D.C.) and low rates. Why Discover is the best home equity loan for low rates: Its APRs start at 6.99 percent. Perks: Discover's home equity loans allow you to borrow up to $300,000 against your home equity. You can choose a loan term of 10, 15, 20 or 30 years. Plus, borrowers won't pay origination fees, application fees, home valuation fees or cash at closing. It's a solid option that's available to most borrowers across the country. What to watch out for: The best rates go to customers with excellent credit, so if your credit score needs work, you may want to look elsewhere. Also, borrowers who pay their loans off within 36 months may have to repay closing costs covered by Discover (max $500). LENDER: Discover MAX LTV RATIO: 90% MAX DEBT-TO-INCOME RATIO: 43% MIN. CREDIT SCORE: 620 INTEREST RATES: 7.49%-13.99% APR LOAN AMOUNT: $35,000 to $300,000 TERM LENGTHS: 10 to 30 years FEES: None ADDITIONAL REQUIREMENTS: Plan to share your personal details, Social Security number, proof of income, employment information, tax returns and pay stubs when you apply. Best home equity loan for different loan options
Overview: BMO Harris Bank has more than 600 branches spread across Arizona, Florida, Illinois, Indiana, Kansas, Minnesota, Missouri and Wisconsin, but customers nationwide can access BMO's online banking resources. Its home equity loans come with low loan minimums, few fees and a variety of term options. Why BMO Harris Bank is the best home equity loan for different loan options: Loan amounts range from $25,000 to $150,000, with terms of five to 20 years. With so many ways to tailor your loan to your needs, a home equity loan from BMO Harris can be ideal for just about any financial need. Perks: Borrowers have plenty of options when it comes to loan terms and amounts on BMO's home equity loans. Plus, there are no application fees and you get a 0.5 percent discount when you set up autopay with a BMO Harris checking account. What to watch out for: You can start your application online, but you may have to speak with a banker to get final approval. LENDER: BMO Harris Bank MAX LTV RATIO: Not specified MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: 700 INTEREST RATES: Starting at 6.94% APR LOAN AMOUNT: $25,000–$150,000 TERM LENGTHS: 5 to 20 years FEES: None ADDITIONAL REQUIREMENTS: Need a Social Security number, proof of income and information about debts and other financial obligations Best home equity loan for homeowners with limited equity
Overview: You can borrow up to 90 percent of your home's value with rates as low as 2.32 percent APR in some states. KeyBank's terms are also flexible - lasting up to 30 years - making this bank a solid choice. Why KeyBank is the best home equity loan for homeowners with limited equity: When you don't have a lot of equity in your home, it can be difficult to find a lender willing to extend you credit. Fortunately, KeyBank lets you borrow up to 90 percent of your home's value in a first and second mortgage if you qualify. Perks: You can get a 0.25 percent rate discount if you have a KeyBank checking account and a KeyBank savings account. What to watch out for: As a regional financial institution, KeyBank offers home equity loans in only 15 states. Plus, a $295 origination fee applies, and you may have to pay for title insurance, closing fees and mortgage taxes. KeyBank's loan details vary by location; the information here applies to the 80013 zip code. LENDER: KeyBank MAX LTV RATIO: 90% combined LTV MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: Not specified INTEREST RATES: 10.44%-13.33% APR LOAN AMOUNT: $25,000–$250,000 TERM LENGTHS: 1 to 30 years FEES: There’s a $295 origination fee, and you may have to pay costs of appraisal, title, flood insurance and mortgage tax if you repay and terminate the loan within 36 months. ADDITIONAL REQUIREMENTS: Borrowers must be 18, provide proof of income and live in one of the states KeyBank serves. Best home equity loan for fast funding
Overview: If you have an average credit score and you've built equity in your home, Spring EQ can help you tap into that equity with flexible loan terms to fit most borrower profiles. Why Spring EQ is the best home equity loan for fast funding: If you're approved for a home equity loan, you could get your loan funds in as few as 11 days once Spring EQ receives your required documents. Perks: You can borrow as much as 90 percent of your home equity. Spring EQ's minimum credit score is 680, and its maximum DTI ratio is 50 percent, which is a draw for people with tight finances. Plus, applicants typically aren't required to provide proof of assets. What to watch out for: Self-employed borrowers may need to provide more proof of income. Additionally, the option to borrow 90 percent of your home's value requires you to have a credit score of at least 740. LENDER: Spring EQ MAX LTV RATIO: 90% MAX DEBT-TO-INCOME RATIO: 50% MIN. CREDIT SCORE: 680 INTEREST RATES: Not specified LOAN AMOUNT: Up to $500,000 TERM LENGTHS: Not specified FEES: Spring EQ does not disclose its fees, but you may be on the hook for an administration fee, credit report and flood certification fees, document prep fees, title report fees, notary or title fees, recording fees and an appraisal fee ADDITIONAL REQUIREMENTS: Plan to share your name, verification of credit profile and debt-to-income ratio and the home’s current value. Best home equity loan for flexible loan terms
Overview: Established in 1987 and with 150 branches spread across California, Indiana, Michigan, Ohio and Wisconsin, Flagstar Bank consistently gets high marks for customer satisfaction and offers a full lineup of banking services. APRs start at 7.79 percent in some states. Why Flagstar Bank is the best home equity loan for flexible loan terms: Terms range from 10 to 20 years on loans from $10,000 to $500,000. Perks: Flagstar gives borrowers a 0.25 percent rate discount for making automatic payments. What to watch out for: Flagstar's home equity loans are available only in bank branches. It's a good bet if you can meet qualifications and live near a branch; otherwise, you may need to look elsewhere. Additionally, loan details vary by location - loan details presented here are based on the 49546 ZIP code. LENDER: Flagstar MAX LTV RATIO: Not specified MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: Not specified INTEREST RATES: Starting at 7.79% APR LOAN AMOUNT: $10,000 to $500,000 TERM LENGTHS: 10 to 20 years FEES: There’s no prepayment penalty and no bank-imposed closing costs. However, borrowers are responsible for prepaid interest, all state- and government-specific charges and taxes and lender’s title insurance. ADDITIONAL REQUIREMENTS: Property insurance is required, as is flood insurance in some cases. Borrowers must provide proof of income. Best home equity loan for low fees at a national bank
Overview: With roots that trace back to 1863, U.S. Bank is now the fifth-largest bank by assets in the country, with about 3,000 branch locations in 27 states. It's a solid option for low fees at a nationwide lender. Why U.S. Bank is the best home equity loan for low fees at a national bank: There are no closing costs on U.S. Bank's home equity loans, which could save you thousands of dollars. Perks: U.S. Bank offers rates starting at 6.1 percent APR on 10- and 15-year home equity loans. These low rates include a 0.5 percent discount for those who make automatic payments from U.S. Bank checking or savings accounts. What to watch out for: U.S. Bank tends to have stricter credit requirements, so the best interest rates go to people with credit scores around 730 or higher. If your credit needs work or the loan terms don't fit your needs, you might want to try another lender. LENDER: U.S. Bank MAX LTV RATIO: Not specified MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: Not specified INTEREST RATES: Starting at 6.85% APR LOAN AMOUNT: $15,000 to $750,000 (up to $1 million for California properties) TERM LENGTHS: Up to 30 years FEES: None ADDITIONAL REQUIREMENTS: Loan approvals are subject to credit approval. Best home equity loan for customer service
Overview: Third Federal (ThirdFed) offers a wide array of banking and financial products, including home equity loans and lines of credit, mortgages and deposit accounts. The bank is known for its dedication to helping customers achieve their financial goals through offering low rates and little fees. Why ThirdFed is the best home equity loan for customer service: The bank scores an impressive A- on the Better Business Bureau and is known for providing its customers with helpful tools, like a mobile app and home equity calculators. Perks: If you qualify for a lower rate with a different lender or competitor, you may be eligible for a rate match or $1,000. Additionally, you can choose between fixed-rate or adjustable-rate terms. What to watch out for: It doesn't disclose eligibility requirements like a minimum credit score or income amount before you apply. Plus, in order to qualify, you must have at least 20 percent equity in your home. LENDER: Third Federal Savings and Loan MAX LTV RATIO: 80% MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: Not specified INTEREST RATES: Starting at 5.79%-6.29% APR LOAN AMOUNT: $10,000 to $200,000 TERM LENGTHS: 5 to 30 years FEES: The only fee charged is an annual fee of $65, which is waived the first year. ADDITIONAL REQUIREMENTS: ThirdFed doesn't disclose eligibility requirements on its website, but you will need to provide two months of pay stubs and last year's W-2 forms. Best home equity loan for low fees at a regional bank
Overview: Established in 1868 and with 130 branches spread across Texas, Frost is a full-service bank that offers checking and saving accounts, personal loans, insurance, investment products and more. Frost's customer service is also consistently highly rated. Why Frost is the best home equity loan for low fees at a regional bank: Frost doesn't charge prepayment penalties, application fees or annual fees on its home equity loans, and there are no closing costs on loans from $2,000 to $500,000. Perks: Frost is a great option if you live in the Lone Star State. It's a good fit for people who just need to borrow a small amount, as loans range from as little as $2,000 to $500,000 or more. Frost offers a 0.25 percent discount for those who set up an automatic payment from a Frost checking or savings account. What to watch out for: This bank only has branches in Texas, so if you're looking for in-person service and live elsewhere, you'll need to look to a different lender. LENDER: Frost MAX LTV RATIO: 80% MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: Not specified INTEREST RATES: Starting at 5.09%-5.39% APR LOAN AMOUNT: Starting at $2,000 TERM LENGTHS: 7 to 20 years FEES: There are no prepayment penalties, no application fees and no annual fees. There are also no closing costs on loans from $2,000 to $500,000. ADDITIONAL REQUIREMENTS: You’ll need to show proof of homeowners insurance, bring your government-issued photo ID and provide your Social Security number Best home equity loan for branch network
Overview: Established in 1935, Connexus offers auto loans, personal loans, student loans, credit cards, banking products and more. Connexus' home equity loan rates are on par with those of other financial institutions on this list, starting as low as 3.49 percent APR. Why Connexus Credit Union is the best home equity loan for a branch network: While some banks and credit unions are localized in one state or region, Connexus serves all 50 states through a co-op shared branch network of more than 6,000 locations throughout the U.S. Perks: Borrowers can bank in person or apply for home equity loans online or by phone. You'll have to join the credit union, but membership options are flexible enough that just about anyone can find a way to join. What to watch out for: Borrowers won't pay an annual fee but will be responsible for closing costs that can range from $175 to $2,000, depending on the property location and loan terms. LENDER: Connexus Credit Union MAX LTV RATIO: 90% MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: Not specified INTEREST RATES: Starting at 7.45% APR LOAN AMOUNT: Starting at $5,000 TERM LENGTHS: 5 to 20 years FEES: Borrowers won’t pay an annual fee, but they will be responsible for closing costs that can range from $175 to $2,000, depending on the property location and loan terms. The credit union also charges a returned loan payment fee of $15, a convenience fee of $9.95 for paying by debit or credit card online ($14.95 by phone) and a forced place insurance processing fee of $12. ADDITIONAL REQUIREMENTS: You must join the credit union to apply for a home equity loan. Best home equity loan for customer experience
Overview: Established in 1971 and with a presence in 15 states, Regions offers a full lineup of personal banking services, including checking and savings accounts, credit cards, mortgages, student loans, personal loans, auto loans and home equity loans and lines of credit. Why Regions Bank is the best home equity loan for customer experience: Regions Bank made our list because it consistently earns high marks from various consumer rating agencies. Perks: Home equity loans come with low interest rates, no annual fee, flexible repayment terms and no closing costs. Borrowers may also qualify for a rate discount by setting up autopay from a Regions Bank checking account. What to watch out for: The property securing your home equity loan will have to be located in a state where Regions has a branch, and you'll need to close on the loan at a branch location. You'll need at least $10,000 in equity. Additionally, borrowers are on the hook for a few fees, including late fees of 5 percent (with a minimum of $29 and a maximum of $100 in most states). There's also a returned check fee of $15 for all states. LENDER: Regions Bank MAX LTV RATIO: 89% MAX DEBT-TO-INCOME RATIO: Not specified MIN. CREDIT SCORE: Not specified INTEREST RATES: Starting at 5.25% APR LOAN AMOUNT: $10,000 to $250,000 TERM LENGTHS: 7 to 20 years FEES: Regions Bank will pay all closing costs, but borrowers may be responsible for over-limit fees of $29, a late fee of 5% of the payment amount (limits apply) and a returned check fee of $15. There’s no annual fee. ADDITIONAL REQUIREMENTS: Regions Bank may ask for additional documentation or information, such as income verification and proof of property, wind or flood insurance if necessary Methodology
To select the top lenders that offer home equity loans, Bankrate considered 15 factors that help consumers decide whether a lender is a good fit for them, such as minimum APR and maximum combined loan-to-value ratio. We sought lenders with low fees and a range of loan amounts for borrowers with varying budgets and credit profiles. We also looked for conveniences like online applications and fast funding. Of the 34 lenders reviewed, 10 made Bankrate's list of best home equity loans. Each lender has a Bankrate rating, which consists of three categories. These categories include: Availability: The minimum loan amount, time to approval, days to close, minimum draw requirement, minimum credit score and loan types offered Affordability: The minimum APR, intro APR, discounts for auto-payers and fees Customer experience: Online application availability, online account access, customer support options, auto-payment and app availability What is a home equity loan and how does it work
is a lump sum that you borrow against the equity you've built in your home. Most lenders will let you borrow up to 80 percent to 85 percent of your home's equity; that is, the value of your home minus the amount you still owe on the mortgage. These loans have fixed interest rates and typical repayment periods between five and 30 years. Because your home serves as the collateral for a home equity loan, a lender can foreclose on it if you fail to make the payments. Home equity loans are available at many banks, credit unions and online lenders. You can use these funds for a range of purposes, including , home improvement projects or higher education costs. The amount you can borrow depends on how much equity you have, your financial situation and other factors. After reviewing your application and checking your credit, the lender will tell you how much you can borrow, your interest rate, your monthly payment, your loan term and any involved. Once you agree to the loan terms, the financial institution will disburse funds as one lump sum. You then repay the loan over time in fixed monthly payments. Calculating your home s equity
You can by dividing the amount you owe by the value of your home. For example, say you owe $200,000 on a home worth $400,000. That's $200,000 / $400,000 = 0.50, or 50 percent loan-to-value (LTV) ratio. This means that you have 50 percent equity in your home. Compare that number to your lender's maximum LTV ratio to see if you might qualify for a home equity loan. Next, calculate how much you may borrow by multiplying your home's value by the lender's maximum LTV ratio and subtracting your mortgage balance. Say your lender allows you to borrow up to 85 percent of your home's value. In this example, that would be $400,000 x 0.85 = $340,000. From there, you would subtract your mortgage balance: $340,000 - $200,000 = $140,000 as the maximum amount you may be eligible to borrow. How rising mortgage rates affect home equity loans
The Federal Reserve has raised interest rates in 2022 to combat inflation, and it's likely these increases will continue for the time being. This action from the Fed has influenced. Because home equity loans typically have fixed rates, it might be a good idea to lock in a rate sooner rather than later to avoid higher costs if rates continue to rise. Best uses for a home equity loan
While home equity loans can be used for almost anything, taking out a loan for something you can pay for another way or don't need can be expensive in the long run. For that reason, financial experts generally advise being careful with what you use loan money for. Some of the to make the most of your loan include: Home improvements: Because these can often add value over time, using your home's value to increase the value can be helpful. Education: Home equity loans generally have a lower interest rate than student loans. : Using home equity to help with debt consolidation may give you better interest rates so you can get your finances on track. Emergency expenses: If you don't have the funds for an immediate need, home equity loans can give you money with much more favorable interest rates than something like a payday loan. Investments: Although risky, using home equity on investments may benefit your financial portfolio over time. Pros and cons of home equity loans
Home equity loans are best suited for people who know how much they need for a given project, as the funds are distributed in one lump sum. Additionally, they're a good option for those who want to because the interest borrowers pay is tax deductible if the money is used for certain renovations. Conversely, if you use home equity loan funds for any reason aside from substantial home improvements, such as paying off student debt or consolidating credit card bills, the mortgage interest is no longer deductible under the tax law. Another benefit of home equity loans is that they have competitive interest rates, which are usually much lower than those of and . Compare lenders' rates for the best deal available. However, if you need money quickly, a home equity loan may not be the way to go. It can take longer to receive the funds from a home equity loan than a personal loan. Additionally, you may be subject to expensive closing costs. PROS
Lower interest rates than those of unsecured debt such as credit cards or personal loans. High borrowing limits. Fixed monthly payments. Interest may be tax deductible. CONS
Potentially expensive closing costs. Risk of losing your home if you are unable to make the payment or ending up underwater on your mortgage if the home value drops. Longer funding timeline than that of personal loans. Alternatives to a home equity loan
A home equity loan is not the right choice for every borrower. Depending on what you need the money for, one of these options may be a better fit: Home equity line of credit (HELOC): Like a home equity loan, a allows you to borrow from your home's equity. However, you'll borrow from a credit line. Additionally, HELOCs have variable rates. Cash-out refinance: If you can qualify for a lower interest rate than what you're currently paying on your mortgage, you may want to . If you refinance for an amount that's more than your current mortgage balance, you can pocket the difference in cash. Reverse mortgage: With a , you receive an advance on your home equity that you don't have to repay until you leave the home. However, these often come with many fees, and accrues continuously on the money you receive. These are also only available to older homeowners (62 or older for Home Equity Conversion Mortgage, the most popular reverse mortgage product, or 55 and older for some proprietary reverse mortgages). Personal loan: may have higher interest rates than home equity loans, but they don't use your home as collateral. Like home equity loans, they have and disburse money in a lump sum. Home equity loan vs HELOC
are both loans backed by the equity in your home. However, while a home equity loan has a fixed interest rate and disburses funds in a lump sum, a HELOC allows you to make draws with variable interest rates, like a credit card. Generally speaking, if you're planning on doing multiple over an extended period of time, a HELOC may be the better option for you. If you're thinking about or doing a larger home improvement project that would require all of the funds upfront, a home equity loan may be the best option. HOME EQUITY LOANS HELOCS Interest Rates Fixed Variable APRs Slightly higher Slightly lower Funds disbursement Lump sum Line of credit Repayment terms 10-30 years of fixed payments First 5-10 years: Interest-only payments Last 10-20 years: interest and principal Best for Debt consolidation, large home improvement projects, major purchases Ongoing home improvement projects, college tuition payments, medical expenses Home equity loan vs HELOC for bad credit
Because home equity loans and HELOCs both use your home as collateral, they are both viable options - it will likely be easier to qualify for a home equity product than, say, an unsecured personal loan. However, it's still important to consider which option is right for your financial situation, especially if your poor credit is a result of missed payments. If you know that you would benefit from a structured monthly budget, a home equity loan is the right option. If you would rather focus on keeping your debt low, a HELOC will allow you to take out only as much as you need and pay it back on a more flexible timeline. If you've shopped around at different lenders, have considered getting a co-signer and still aren't sure if you'll get approved due to your credit score, you still have options. Consider why you're interested in taking out a loan. Do you need the funds immediately? Will this help you or hurt you in the long run by racking up more debt? If you're having trouble getting approved, take some time to . It's also important to decide how a loan could impact your credit score in the future because you'll be taking on more debt with both a home equity loan or a HELOC. How to apply for a home equity loan
Prepare for a by checking your credit, calculating your home equity and taking stock of how much other debt you already have. Many lenders let you start the application process online by entering your personal and financial information. The documents and information you'll typically need to apply for a home equity loan include: Identification or Social Security Number Employment history and employer's contact information Evidence of your income for the past two years, typically through your tax returns Last two W-2 statements Most recent pay stub Proof of ownership of the home Home insurance declarations page Current mortgage statement Appraisal or valuation of your home Evidence of existing liens on your home Amount you pay in child support or alimony You may also need to pay fees for a loan application, credit check and home appraisal. Costs of a home equity loan
Depending on the lender, borrowers may pay various fees either at closing or throughout the life of the loan. These add to your overall costs, so understand what you'll pay before signing for a home equity loan. Some common costs include: Origination fee to set up the loan Closing costs Late fees for a delayed monthly payment Prepayment penalty for paying the loan off before the term ends Additionally, you may have to pay for title insurance, property insurance, flood insurance or certain taxes depending on the lender, the home's location, your state laws or other factors. Getting a home equity loan with bad credit
If you have poor credit, you may have a harder time getting approved for a loan, but it is still possible. If you're interested in , the first step is to shop around with a few lenders. Since each lender has its own requirements, it's possible one lender will be more accepting of a poorer credit score and offer better rates than a similar lender. Generally, you'll have to meet the following criteria to qualify for a home equity loan: At least 15 percent to 20 percent equity in your home A minimum credit score of 620 A maximum On-time bill payment history Stable employment or income history If you don't meet the requirements, you may want to consider getting a to increase your chances of approval. FAQs about home equity loans
Home equity is the stake you have in your property. Over time, you build up equity in your home as you make payments on your mortgage or your home's value rises. If you have built a substantial amount of equity in your home, you can take out a home equity loan. Home equity loans are installment loans that allow you to borrow a percentage of your home equity, typically up to 85 percent. Unlike with a HELOC, you receive all of the money upfront and then make equal monthly payments of principal and interest for the life of the loan (similar to a mortgage). To calculate your home equity, subtract your current mortgage balance from the appraised value of your home. Check out Bankrate's to estimate how much you can borrow.
A home equity loan is an installment loan based on the equity of the borrower's home. Most home equity lenders allow you to borrow a certain percentage of your home equity, typically up to 85 percent. Unlike with a HELOC, you receive all of the money upfront and then make equal monthly payments of principal and interest for the life of the loan (similar to a mortgage).
Banks, credit unions and other . Here's an overview: Banks: A bank can offer a competitive rate for a home equity loan, provided you meet requirements for the lowest possible APR and set up automatic payments. Credit unions: Credit unions can also offer competitive home equity loan rates, but all of their products, including home equity loans, are only available to members. Many credit unions have very flexible membership requirements, however, so it might be easier to join one than you think. Non-bank lenders: Non-bank lenders are typically online-only operations with streamlined processes that translate to fast funding. They might offer higher or lower rates than a bank, so compare options. If you have an existing relationship with a bank, it may be best to start your search there, but it's always a good idea to shop around with a few lenders to compare rates, fees and loan terms. A good way to do this is by taking advantage of prequalification forms, which let you see your potential rates and eligibility with a lender without impacting your credit score. Be sure to confirm this with your lender, however; some prequalifications do in fact involve a hard credit pull, which affects your score slightly.
A home equity loan may be a good option if you've been planning a large home renovation or if you need to consolidate debt and you spot a good rate. If you've been considering a home equity loan, now might be a good time to lock in your rate before they rise further.
Many lenders have fixed LTV ratio requirements for their home equity loans, meaning you'll need to have a certain amount of equity in your home to qualify. Lenders will also factor in your credit score and income when determining your rate and eligibility. Minimum requirements generally include a credit score of 620 or higher, a maximum loan-to-value ratio of 80 percent or 85 percent and a documented source of income.
Home equity loan rates are typically higher than first mortgage rates because home equity loans are considered . In the event of a foreclosure, the lender of a second mortgage will be paid only after the lender of the first mortgage has been paid in full. To make up for this risk, lenders offering second mortgages will charge higher interest rates. Since home equity loan rates are higher than first mortgage rates as a baseline, as of early October 2022, you can expect to find home equity loan rates starting around 7 percent.
Unlike other loans, such as , home equity loans must go through a closing period. During this period, all home equity loans are legally subject to a , which states that you have the right to cancel your home equity loan until midnight of the third business day after you sign your contract. Changes to the contract, as well as funds disbursement, cannot occur during this time.
are both potential ways to get money for home renovations or unexpected expenses. That said, both options have their pros and cons. While a home equity loan is a "second mortgage" that allows you to borrow additional funds for nearly any purpose, a replaces your existing mortgage. With a cash-out refinance, you'll take out a new mortgage for more than your outstanding loan balance, and then withdraw the difference in cash. Because of this, a home equity loan is typically best if you already have a good rate and terms on your current mortgage. A cash-out refinance only makes sense if you can qualify for a better interest rate on your mortgage and you don't mind resetting your repayment term.
Because home equity loans typically require appraisals, it can take longer to get a home equity loan than a personal loan. From application to funds disbursement, the process typically takes two to four weeks - although some new online lenders are trying to shorten that process.
The exact amount you can borrow varies depending on the lender, but you can generally borrow up to 80 or 85 percent of your home's appraised value. Home equity lenders reviewed by Bankrate