How Do I Get a Home Equity Loan?
Homeowners across the U.S. have watched their home values soar by nearly 50% in the past four years. As a result, you might be sitting on a significant amount of home equity, and you’re not alone — U.S. homeowners collectively hold around $32 trillion in equity.
If you’re planning to make home improvements, consolidate debt, or cover other expenses, you may be wondering, “How do I get a home equity loan?”
In this guide, we break down the steps you’ll need to take to tap into your home equity, explain how long it might take to get your funds, and share some home equity pitfalls to avoid.
What is a home equity loan?
A home equity loan allows you to borrow against the value of your home minus what you still owe on your mortgage. Lenders typically provide these loans in a lump sum, which you then repay in fixed monthly installments over a set period, much like your primary mortgage. The amount you can borrow is based on your home’s current value and the equity you’ve built, which increases as your mortgage balance goes down and property values rise.
How does a home equity loan work?
When you take out a home equity loan, the lender assesses the equity in your home. Generally, you can borrow up to 85% of your home’s value, minus your outstanding mortgage balance.
For example, if your home is worth $300,000 and you owe $200,000, your available equity might allow you to borrow up to $85,000. The loan is then repaid over a period of 5 to 30 years with a fixed interest rate, making it easier to budget your payments.
Some lenders may allow you to borrow more than 85% of your home’s value, depending on your property, credit history, and lending situation.
How do I get a home equity loan?
Getting a home equity loan involves several steps, but it’s a straightforward process. Here’s what to expect:
1. Assess your home equity
Start by calculating how much equity you’ve built in your home. Most lenders require you to have at least 20% equity to qualify. (Some lenders allow for 15%.) To estimate your equity, subtract your current mortgage balance from your home’s market value. The higher your equity, the more you can potentially borrow.
2. Check your credit score
Lenders will review your credit score to determine your eligibility and interest rate. A score of 620 or higher is generally needed, but a higher score (660 or 680) could help you qualify for better rates. If your score needs improvement, consider paying down debt or disputing any errors on your report before applying.
3. Gather financial documentation
Be prepared to provide documentation, such as proof of income, tax returns, and details of your existing mortgage. Lenders need to confirm your financial health and ability to repay the loan. Having these documents ready can speed up the application process.
4. Shop around for lenders
Different lenders offer varying interest rates and terms, so it’s smart to compare your options. Look at banks, credit unions, and online lenders to find the best deal. Pay attention to loan fees, terms, and customer service reviews.
5. Submit your application
Once you’ve chosen a lender, complete the loan application. Be honest and thorough with your information. The lender will review your application and order an appraisal of your home to verify its current value.
6. Review the loan terms
After approval, carefully review the loan’s terms, including the interest rate, repayment period, and any fees. Ask questions if anything is unclear, and make sure the loan fits within your budget.
7. Close the loan
If everything checks out, you’ll move on to closing. At this stage, you’ll sign the final paperwork, and the loan funds will be disbursed. The time between application and funding typically takes a few weeks.
How can I use my home equity loan?
Home equity loans offer flexibility in how you can use the funds, including:
Home improvements: Renovate your kitchen, update your bathroom, or tackle larger projects that add value to your home.
Debt consolidation: Pay off higher-interest credit card balances and streamline your debt into one manageable payment.
Education expenses: Cover tuition or other educational costs for you or your family.
Major purchases: Finance a large purchase, such as a vehicle or a second home.
Your next home purchase: Modern programs are available that let you use your existing equity to buy before you sell, allowing you to move only once. (More on this later in our post.)
Top reasons people borrow against their home equity
A recent HomeLight survey of loan officers from 85 lending companies across the country revealed that the majority of U.S. homeowners who take out an equity-backed loan use the money for debt consolidation, home improvements, or to purchase another property. Below is a table showing all the borrower-use responses from our 2024 lender survey:
Reason for borrowing
Percentage of responses
Debt consolidation
88%
Home improvements or renovations
79%
Purchasing another property
55%
Emergency expenses
9%
College or other education expenses
6%
Starting or growing a business
4%
Other investment opportunities
4%
Major big-ticket purchase (e.g., car, boat, RV)
3%
Medical expenses
1%
Supplement retirement income
1%
Other
1%
Source: HomeLight 2024 Lender Survey
How much are homeowners borrowing with equity?
Based on our lender survey, the majority of U.S. homeowners using an equity-backed loan borrow between $76,000 and $100,000. Here is a table showing the breakdown of all loan officer responses:
Borrowed amount
Percentage of responses
$201,000 or more
7%
$176,000–$200,000
7%
$151,000–$175,000
7%
$126,000–$150,000
7%
$101,000–$125,000
14%
$76,000–$100,000
32%
$51,000–$75,000
16%
$26,000–$50,000
8%
$10,000–$25,000
1%
Less than $10,000
1%
Source: HomeLight 2024 Lender Survey
How much does a home equity loan cost?
The average cost of a typical home equity loan is 2%-5% of the total loan amount but can be as low as 1%, depending on the borrower, the lender, and the property. The costs of the loan include:
Interest: Your interest rate will be fixed for the life of the loan, but rates vary depending on your credit score and the lender.
Fees: Common fees include application fees, appraisal fees, and closing costs.
Insurance: You’ll need to maintain homeowners insurance, and in some cases, lenders may require title insurance or other protections.
Be sure to ask about any hidden costs or early repayment penalties before signing.
