How to get a home equity loan
The combined challenge of high inflation and high interest rates is putting pressure on many Americans. Not only are monthly expenses often higher, but loan obligations can also be more expensive. If you have credit card debt, for instance, higher interest rates can make paying off your balance more difficult.
At the same time, real estate prices are also generally higher than they were pre-pandemic. So, some homeowners may have enjoyed home equity gains, which they can potentially borrow against. Doing so could help homeowners pay off higher-interest debt or obtain cash for things like home renovations or repairs.
Taking out a home equity loan shouldn't be a snap decision, as you want to make sure you're aware of the risks and are comfortable taking on more debt. But the actual process of getting a home equity loan doesn't have to be overly complex.
if you think you could benefit from taking out a home equity loan then start exploring your options here now.
How to get a home equity loan
To get a home equity loan, consider the following:
Review your home equity level
Before getting too deep into the process, consider what your home equity level currently looks like. Your home equity equals your home's appraised value minus existing debt, such as your traditional mortgage. So, if your home's gone up in value, your home equity has probably increased too.
Costs for a home appraisal can vary but generally are in the ballpark of a few hundred dollars. Before you get a formal appraisal, though, you might look at current estimates for your home on real estate websites.
Typically, you can borrow up to 85% of your home's value on a combined basis, meaning your existing mortgage and a home equity loan can add up to 85% of the appraised value. But that can vary by lender and your circumstances.
If your current level doesn't leave you with much to borrow, you might wait to take out a home equity loan until you pay down your mortgage more, for example. Or you might wait to see if your home goes up in value over time.
You can easily check your home equity options here now to see if it's worth it for you.
Check your credit score
Another important aspect of getting a home equity loan is having a good credit score. The minimum can vary by lender, but generally, you need at least a 680 FICO score, according to Experian, especially if you want a good interest rate.
You can find your credit score for free, though you'll want to be sure you do so through a reputable provider. The Federal Trade Commission says the only site authorized by law to provide free annual credit reports is AnnualCreditReport.com.
If your score is lower than you hoped, you might look into resources around how to boost your credit score or speak with a trusted professional. In general, a higher credit score corresponds with lower interest rates.
Compare lenders
Once you have a good sense of how much equity you have and your credit score, you can start shopping around for different home equity lenders. Doing so might involve speaking with your bank or other financial institutions you have an existing relationship with, and you also might search online to compare lenders.
In many cases, you can enter a few details about your home equity situation to get a quote without affecting your credit score, though you'll probably want to clarify if the lender is making a hard inquiry, which can lower your credit score slightly.
The good news though is that you can often shop multiple lenders and have multiple hard inquiries that end up only counting as one inquiry for credit purposes. That typically is possible if the inquiries occur within a 14-45 day period, depending on the credit scoring model, as Equifax explains.
You can easily compare lenders here now or via the below table.
Apply for a home equity loan
After you shop around, you can pick a lender that seems best for you and apply for a home equity loan. You'll likely need to supply a variety of documents, like your ID and income verification files. In general, the process will probably feel familiar if you already went through the steps to get your initial mortgage.
Even if it's not too complicated, though, be sure to carefully weigh your options. If you do decide to move forward with taking out a home equity loan, be sure to read the fine print so you don't get surprised by the loan terms. Taking on additional debt is a big responsibility, but for many homeowners, a home equity loan provides a worthwhile source of cash.
