A home equity loan is a type of financing that uses your equity as collateral. The lender decides how much you can borrow based on the amount of equity you have in your home. Most lenders won’t lend you the full amount of your equity, as this increases their risk.
If you’re approved, the lender will create a second mortgage and cut you a check for the full loan amount. You can then use this lump sum how you wish and will repay it in equal installments with interest over time. This can be a good option if you know exactly how much you need to borrow.
If you want to take out a home equity loan, follow these steps:
Check your credit:
When you apply for a home equity loan, the lender will review your credit to determine if you qualify and what interest rate you’ll get—so it’s a good idea to check your credit beforehand to see where you stand. You’ll usually need a credit score of at least 620. While there are also lenders that accept lower scores than this, you will likely end up with a higher interest rate, and you might need to demonstrate a higher amount of income and greater amount of equity to get approved.
Compare lenders and pick an option:
Shop around and compare as many lenders as possible to find a loan that suits your needs. You might start by reaching out to your current lender, but be sure to consider other lenders, too, such as the ones we’ve listed above. Keep in mind, though, that fewer lenders offer home equity loans compared to HELOCs. Afterward, pick the option that works best for you.
Fill out the application:
Once you’ve chosen a lender, you’ll need to fill out a full application and provide any required documentation, such as tax returns or pay stubs.
Get your funds:
If you’re approved, the lender will have you sign for the loan so the funds can be released to you. You can generally expect the process from applying to closing on the loan to take anywhere from two weeks to two months.
