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.
Home Equity Loan Requirements
Eligibility requirements for a home equity loan vary from lender to lender. However, all lenders look for responsible, low-risk individuals.
These are generally the benchmarks that most lenders expect borrowers to meet:
- 620 credit score (some lenders may require a minimum of 680)
- Proof of stable and sustainable income from the past two years
- At least 80% equity in your property
- Debt-to-income (DTI) ratio no higher than 43%
- Excellent financial history
- Proof of homeowners insurance