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Published: Sep 29, 2023 41 min read
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Home equity loans are popular options for many who need to finance home improvements, educational expenses or consolidate debt. This type of loan generally provides homeowners with low interest rates and fixed monthly payments. However, they also present a risk since they use the home as collateral.

Read on to see which banks are offering the best home equity loan options and some great ways to tap into your home equity.

Our Top Picks for Best Home Equity Loans of 2023

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Best Home Equity Loan Lenders Reviews

  • No origination, appraisal or application fees or mortgage taxes due at closing
  • CT, MN, NC, NY, OK and TX residents are exempt from early payment penalties
  • Full online application process
  • Prepayment penalty of up to $500 applicable for 36 months after closing
  • No information regarding discounts
Annual Percentage Rate (APR)
Loan amounts
10 to 30 years
Max. Loan-to-Value (LTV)

Why we chose this company: Discover makes our top home equity loans list because its fees are lower than most competitors’.

Online bank Discover makes our list for its low fees — unlike most banks, it doesn’t charge any application, origination or appraisal fees. It also doesn’t require an upfront cash payment at closing or mortgage taxes.

Discover’s home equity loans have fixed interest rates, and are available for first and second liens. You can borrow between $35,000 and $300,000 and choose a repayment term between 10 and 30 years.

Eligibility requirements

With Discover, you can check if you qualify for a home equity loan by providing some basic information before you formally apply. To qualify, you should have a credit score of at least 620 and sufficient equity — usually between 10% to 20% — in your home.

As with most loans, the amount you can borrow will depend on your creditworthiness. Only borrowers with a credit score over 700 may qualify for loans over $150,000 and lower rates.

Once you’re ready to submit your application, you’ll be assigned a banker who will help you throughout the process. In addition, Discover’s eClosing features let you review, sign and submit closing documents online. Approval time can take between one to two weeks.

Read Discover Home Equity Loans Review

  • Loan amounts from $5,000
  • No annual fee
  • 15-year draw period available
  • A credit union membership is required
  • Closing costs can range from $175 to $2,000
  • Home equity loans not available in MD, TX, HI and AK
Annual Percentage Rate (APR)
7.49% - 15.90%
Loan Amount
From $5,000
5 to 15 years
Max. Loan-to-Value (LTV)

Why we chose this company: Connexus Credit Union offers flexible repayment terms, including interest-only HELOCs.

Connexus Credit Union stands out for its low six-month introductory rates, which start at 4.50% for its home equity lines of credit (HELOC)

Connexus offers three different home equity products: home equity loans, HELOCs and interest-only HELOCs. Its home equity loans have fixed interest rates and repayment terms of up to 15 years.

The minimum loan amount is $5,000, but borrowers can access up to 90% of their home’s equity, depending on their credit history and loan-to-value ratio (LTV).

Both HELOC options have a $5,000 minimum loan amount and a 15-year repayment term. In addition, Connexus offers a 15-year drawing period, which is longer than the typical 10-year period most competitors offer.

Connexus’ interest-only HELOCs provide some flexibility, allowing you to make interest payments during the drawing period instead of repaying 1.5% of the borrowed amount and interest. Basically, Connexus lets you delay principal repayments until the 15-year repayment period. This option may be convenient if you need to make smaller payments now, but can commit to larger payments later.

Although Connexus doesn’t charge annual fees, borrowers are responsible for closing costs which can range from $175 to $2,000 depending on the property location, loan terms and the amount borrowed.

Eligibility requirements

Like most banks and credit unions, Connexus considers your credit worthiness and history along with your loan-to-value and debt-to-income ratios to determine your eligibility for a home equity loan. Connexus does not disclose the minimum credit score required.

In addition to the typical eligibility requirements, you have to become a member of Connexus in order to apply for a home equity loan or any of its products. To join you must make a one-time donation of $5 to the Connexus Association or be a member of an affiliated company or community.

Do note that Connexus’ home equity loan products are not available in Maryland, Texas, Hawaii and Alaska.

Read Connexus Credit Union Home Equity Loan Review

  • Line amounts of up to $1 million
  • 0.25% rate discount with AutoPay
  • 1 to 4-unit properties and modular homes are eligible
  • $75 annual fee after first year
  • Not available in Texas, Puerto Rico or the U.S. Virgin Islands
  • HELOANs are only available in states with a branch office
Annual Percentage Rate (APR)
8.49% - 21.00%
Loan Amount
$10,000 - $1,000,000
10-year draw period, 20-year repayment
Max. Loan-to-Value (LTV)

Why we chose this company: Flagstar offers lines of credit of up to $1 million, which makes it the best option for large HELOC loans.

Flagstar’s home equity line of credit is available for amounts ranging between $10,000 to $1 million and variable interest rates.

A 0.25% interest rate discount is available for customers that set up AutoPay from a Flagstar deposit account. In addition, it offers a 10-year drawing period and a 20-year repayment term.

Flagstar also offers home equity loans, though only in the states where it has physical branches — that is, California, Michigan, Indiana, Ohio and Wisconsin. Its home equity loan interest rates start at 8.49% with repayment terms of 10, 15 and 20 years.

Flagstar doesn’t charge closing costs (which typically include appraisal, title, notary and recording fees) as long as you maintain the HELOC open for at least 36 months. However, customers are responsible for paying government taxes and fees at closing and a $75 annual fee after the first year.

Eligibility requirements

Flagstar HELOC is available for primary residences, including 1-to-4 unit residential homes and modular homes.

A combined loan-to value of 80% or lower is recommended. Flagstar will also consider your credit qualifications, lien position, loan amount and the type of property.

As of this writing, Flagstar HELOC is not available in Texas, Puerto Rico or the U.S. Virgin Islands.

Read Flagstar Home Equity Loans Review

  • Rates starting at 6.25% APR
  • HELOC can be converted into a fixed-rate loan
  • No closing costs
  • Property tied to the loan must be in a state with a Regions retail branch
  • Branches only in AL, AK, FL, GA, IL, IN, IA, KY, LA, MS, MO, NC, SC, TN, and TX
Annual Percentage Rate (APR)
6.25% to 13.875%
Loan Amounts
$10,000 – $250,000
10, 15 or 20 years
Max. Loan-to-Value (LTV)

Why we chose this company: Regions Bank made our cut as the bank with the most flexible repayment terms because it offers term lengths from seven to 20 years.

Regions Bank offers fixed-rate home equity loans with no closing costs. Loan amounts range from $10,000 to $250,000 with 10, 15, or 20-year repayment terms.

In addition to home equity loans, Regions Bank offers home equity lines of credit (HELOCs). These start at $10,000 and go up to $500,000, with a 10-year draw and 20-year repayment period.

Regions Bank covers full closing costs for credit lines of $250,000 or less. If your line of credit exceeds $250,000, Regions Bank will contribute up to $500. However, if a line of credit is terminated within the first 24 months of the opening date, the bank will transfer these costs to the borrower. Closing costs may range from $150 to $2,000.

Region’s website suggests the lender will not accept loan-to-value (LTV) ratios higher than 89% for first and second mortgages for primary residences, and 75% for secondary residences.

Eligibility requirements

To be eligible for its home equity products, your property must be located in a state where Regions has a branch. The bank currently has physical branches in 15 states: Texas, Tennessee, South Carolina, North Carolina, Louisiana, Mississippi, Missouri, Kentucky, Illinois, Indiana, Iowa, Georgia, Florida, Arkansas and Alabama.

  • Multiple fixed-rate repayment options may be available
  • Covers appraisal fee
  • Only offers HELOC
  • Prepayment penalty for terminating a line of credit within 36 months
  • $15 service fee
  • $50 annual fee for residents in AL, AR, CA, FL, GA, IN, KY. NJ and OH
Annual Percentage Rate (APR)
8.50% – 16.00% (or state maximum)
Loan Amounts
From $5,000
5, 10, 15, 20 and 30 years
Max. Loan-to-Value (LTV)
Not disclosed

Why we chose this company: Truist is our choice for the best fixed-rate HELOC because borrowers can choose fixed rate and fixed repayment terms of between five and 20 years.

Truist offers home equity lines of credit with three repayment options: interest-only, fixed and variable-rate repayments with zero-cost closing options.

The minimum amount you can request for HELOCs is $5,000; the maximum will depend on your creditworthiness and how much equity you have available.

Fixed-rate HELOCs have repayment terms of 5, 10, 15, and 20 years and may be subject to a $15 set up fee. Variable-rate lines of credit, on the other hand, have a 10-year draw period and a 20-year repayment period.

Truist covers closing costs for lines of up to $500,000, although this may result in higher interest rates. Prepayment penalties on lines of credit may also apply if the account is closed within three years of opening. This means you’ll have to pay back any origination or closing costs covered by Truist, which can go all the way up to $10,000.

Eligibility requirements

Like other banks, Truist looks at your income, credit score, employment and both debt-to-income and loan-to-value ratios when determining your eligibility. The bank will also conduct an employment verification and ask you for information on financial debts and assets.

Read Truist Home Equity Review.

  • 100% online application can be approved in 5 minutes
  • 0.25% rate reduction with AutoPay
  • No prepayment penalty
  • HELOC not available in DE, HI, KY, NY, TX, UT and WV
  • Origination fee of up to 4.99% of your initial draw, depending on state
  • Minimum loan amount $20,000, higher than some competitors
Annual Percentage Rate (APR)
From 8.90% (with discounts)
Loan Amount
$20,000 - $400,000
5, 10, 15, 20 and 30 years
Max. Loan-to-Value (LTV)
Not disclosed

Why we chose this company: Figure offers a completely online application process, quick approval times and funding in as little as five days.

Figure is a financial technology company with headquarters in New York and San Francisco, California. It offers home equity lines of credit, refinancing and home loans through a partnership with Homebridge.

This fintech company stands out for its online application process which lets customers check their rate, apply and know if they’ve been approved within minutes. The process includes an eNotary who confirms customers’ identity and reviews mortgage applications and documents electronically. In addition, loans can be funded within five days after approval.

Figure’s loan amounts for HELOCs range from $20,000 to $400,000 with fixed interest rates and loan terms of five, 10, 15 and 30 years.

Figure doesn’t charge maintenance fees, account opening fees or prepayment penalties. It does, however, charge a one-time origination fee of up to 4.99% of the initial draw. This fee can vary depending on your property location and credit experience. It can also be amortized in the payment schedule.

Eligibility requirements

Figure’s HELOC is available for single family residences, townhouses, planned urban developments, condos, investment/secondary properties and vacation homes as long as the applicant’s name appears in the county records as the property owner.

The minimum credit score required is 640 for primary residences and 680 for investment or non-owner occupied properties. Figure also considers factors such as your combined loan-to-value ratio, employment status and income.

Do note that Figure is currently not available in nine states: Delaware, Hawaii, Kentucky, Maryland, New York, South Carolina, Texas, Utah and West Virginia.

  • No closing costs, although initial escrow-related costs may apply
  • Interest rate will never exceed 18% APR, subject to applicable state law
  • 0.50% interest rate discount with automatic payment option
  • $90 annual fee may apply after the first year
  • Early closure fee of 1% or up to $500 applicable during the first 30 months
  • Home equity loans not available in NY, HI, LA, OK and RI if property is held in a trust
Annual Percentage Rate (APR)
From 8.00% (HELOAN) 8.80% - 12.55% (HELOC)
Loan amounts
10 to 30 years
Max. Loan-to-Value (LTV)

Why we chose this company: U.S. Bank has the best home equity loan for borrowers with good credit because it offers highly competitive rates for customers with scores of 730 or more.

U.S. Bank offers home equity loans and HELOCs without closing costs. Home equity loans have repayment terms of up to 30 years. Loan amounts start at $50,000 and go up to 80% of your home equity or $750,000.

While HELOCs feature variable rates, you have the option to convert a portion or the total amount of your balance to a fixed rate during the initial draw period, which is 10 years. During that time, minimum monthly payments are either 1% or 2% of the balance, but qualifying borrowers may have the option to make interest-only payments.

Lines of credit have an annual fee of $90, which you can waive for the first year by opening a U.S. Bank Platinum checking account. You may borrow from your line of credit by visiting a local branch, using checks, ATMs or with a Visa Access Card.

Eligibility requirements

You’ll need a credit score of 730 and a U.S. Bank checking or saving account to get the best APR rates and set up automatic payments. However, the minimum score required to apply is 660.

Read U.S. Bank Home Equity review.

  • No appraisal fees or closing costs
  • 0.25% off with AutoPay if using a Citizens Checking account
  • Choose full or interest-only payments during 10-year draw period
  • Only for properties in AL, AR, CT, DC, DE, FL, GA, IA, IL, IN, KY, MA, MD, ME, MI, MN, NC, NE, NH, NJ, NY, OH, OK, PA, RI, SC, SD, TN, VA or VT.
  • $50 annual fee after the first year on standard HELOCs
Annual Percentage Rate (APR)
8.50% to 21.00%
Loan Amounts
10 to 15 years
Max. Loan-to-Value (LTV)
Not disclosed

Why we chose this company: We chose Citizens Bank as the best for customer experience because it has consistently good reviews from customers and received high rankings from third-party consumer research companies.

Citizens Bank offers two home equity products: a standard home equity line of credit and their Citizens GoalBuilder HELOC.

Both products have a 10-year borrowing period and a 15-year repayment term and variable interest rates. Clients who enroll in automatic monthly payments from a Citizens Bank checking account can get a 0.25% rate discount.

The main difference between both HELOC products is the minimum and maximum amount you can borrow. The standard HELOC has a $17,500 borrowing minimum, while the Citizens GoalBuilder HELOC offers credit limits from $5,000 to $25,000.

Another difference is that clients with a GoalBuilder HELOC don't have to pay annual fees, whereas those with a standard HELOC pay $50 after the first year.

In addition to offering competitive HELOC products, Citizens Bank stands out for providing an outstanding customer experience. In 2023, it ranked in the top ten of J.D. Power’s U.S. Mortgage Servicer Satisfaction Study, obtaining 632 points out of 1,000. The study considered overall customer satisfaction based on factors such as customer interaction, communications and new customer orientation.

Eligibility requirements

Citizens Bank does not disclose its credit requirements for home equity products. All products are subject to approval based on credit score, LTV and DTI ratios.

Eligible properties include owner-occupied 1- to 4-family properties or condominiums. Investment properties (non-owner occupied), co-ops, mobile homes, manufactured homes or properties on sale are ineligible. Additionally, property or flood insurance may be required.

  • No application, origination or annual fees
  • Borrows up to 100% of your home equity for HELOANS and up to 95% for HELOCs
  • Longer 20-year draw period for HELOCs
  • Loans of less than $25,000 have a 1.00% rate increase
  • Membership limited to the military and their families
Annual Percentage Rate (APR)
From 6.640% (HELOAN) 8.750% - 18.00% (HELOC)
Loan Amount
$10,000 - $500,000
5 to 20 years
Max. Loan-to-Value (LTV)

Why we chose this company: Navy Federal Credit Union offers the best home equity loans for military and veterans, with offerings that include loans with no application or origination fees and HELOCs with longer drawing periods than most competitors.

Navy Federal offers both fixed-rate equity loans and home equity lines of credit for loan amounts of $10,000 up to $500,000. In the case of equity loans, Navy Federal lets you borrow up to 100% of your home’s equity with repayment terms of five, 10, 15 and 20 years.

However, with a HELOC you can borrow up to 95% of your home’s equity at a variable rate. Navy Federal offers a longer than average 20-year drawing period, in comparison to the typical 10-year term most competitors offer. During this period you can borrow against your home’s equity as needed. You then get a 20-year repayment period.

Navy Federal doesn’t cover closing costs, these can range from $300 to $2,000 for loans of up to $250,000. In addition, Navy Federal doesn’t disclose whether borrowers can choose to make interest-only payments during the drawing periods.

Eligibility requirements

Note that you must be either a duty member of the armed forces, a retiree, a veteran or an immediate military family member in order to qualify for a Navy Federal loan. Their clients include members of the Army, Marine Corps, Air Force, Navy, National Guard, Coast Guard and Space Force. It also applies to DoD reservists, DoD officer candidates and Delayed Entry Program enlisters.

Like most institutions, Navy Federal will evaluate your credit history, your combined loan-to-value ratio, loan amount and property type to determine your eligibility and interest rate.

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Other home equity loan companies we considered

While solid contenders, the following home equity loan lenders didn’t make it to the top of our list. Nevertheless, they might have features and products that are suited to your particular circumstances.

PNC Bank

  • Offers HELOC and fixed and variable rate options
  • Minimum draw amount in Texas is $4,000
  • Potential home renovation tax benefits when renovating for medical purposes or installing energy efficient equipment
  • $100 transfer fee each time borrowers opt for a fixed rate
  • In Texas, only applicants with primary residences and LTVs under 80% are eligible

PNC offers fixed rate home equity lines of credit for balances of $5,000 or more and a 0.25% rate discount when you enroll in autopay. However, interest rates aren’t readily displayed on its website and it charges an annual fee of $50. In addition, its home equity products are not available in Louisiana, Mississippi, Nevada, South Dakota, Alaska and Hawaii.

Read PNC Home Equity Review


  • Loan amounts from $25,000 up to $1,000,000
  • Covers most closing costs
  • Annual fee waived if you pay $99 in interest over 12 months
  • Only offers HELOCs
  • Does not offer lines of credit for certain types of properties
  • Properties must be fully livable and have no safety issues to be eligible

PenFed only offers home equity lines of credit with a 10-year draw period and a 20-year repayment period. Loan amounts range from $25,000 to $500,000. However, to apply you need to become a credit union member and have a minimum credit score of 680. It also charges an annual fee during the draw period, unless you pay $99 in interest every year.

Bank of America

  • No fees for converting a variable rate loan to a fixed rate
  • 0.25% rate discount if you enroll in AutoPay using a BofA checking or savings account
  • Up to 1.50% rate discount for initial withdrawals (0.10% for every $10,000)
  • Only offers HELOCs
  • Can't open more than three fixed-rate loans at the same time
  • Maximum APR is not disclosed

Bank of America is another contender that offers home equity lines of credit and fixed rate loan options. In addition, it features introductory rates and multiple rate discounts, such as 0.25% if you enroll in autopay and up to 0.625% for customers with a Preferred Rewards account. However, it doesn’t offer home equity loans nor does it readily disclose the maximum APR customers could pay.

Read Bank of America Home Equity Review


  • 0.25% rate discount with KeyBank checking or savings account
  • Borrow up to 80% of your home's value
  • Flexible payment options including principal and interest, interest-only or fixed
  • Doesn't openly disclose APRs for their home equity loans
  • Only services 15 states: AK, CO, CT, ID, IN, MA, ME, MI, NY, OH, OR, PA, UT, VT and WA

KeyBank offers both home equity loans and lines of credit of up to 80% of your home’s value. Home equity loans are available from $25,000 to $500,000, whereas the minimum loan amount for HELOCs is $10,000. Like most banks, KeyBank also offers a 0.25% rate discount. However, its products are only available in 15 states.

Spring EQ

  • 620 minimum score for home equity loans
  • Offers access to up to 95% of your home value
  • Relatively fast funding, between 14 to 21 days
  • Doesn't disclose information about fees and rates

Spring EQ is a mortgage lender that specializes in home equity products. It only offers home equity loans, home equity lines of credit and refinance loans. With Spring EQ you can access up to 95% of your home equity and borrow up to $500,000.

Loan terms range from five to 30 years. The loan application process is completely online, providing instant qualification in most cases and funding between 14 to 21 days. However, it didn’t make our top picks as current fees and rates are not openly available on their website.

Read Spring EQ Home Equity Review.

BMO Harris Bank

  • 6-month introductory rates at 6.99%
  • 0.50% AutoPay rate discount
  • Fixed-rate options for HELOCs
  • $75 fee each time you convert HELOC from a variable to a fixed rate
  • Not all transactions are eligible for remote closing
  • $75 annual fee each year during the draw period

BMO Harris Bank offers both home equity loans and HELOC, which are available for customers with a minimum credit score of 700 or between 650 and 680, respectively. While BMO Harris home equity line of credit rates are competitive, it mainly operates in only eight states: Arizona, Illinois, Florida, Kansas, Indiana, Minnesota, Missouri and Wisconsin.

Read BMO Harris Bank Home Equity Review.


  • No application or annual fee charges
  • 0.25% rate discount with automatic payment
  • APR rates for HELOANs, starting at 7.55%
  • No prepayment penalty for HELOC
  • Available in Texas only

Frost Bank features competitive home equity loan and HELOC products, with terms up to 20 years. Home equity loans and HELOCs are available starting from $2,000 and $8,000, respectively. Frost's main drawback is that it’s only available in Texas, however, if you live in this state it may be an option worth considering.


  • Lets you convert up to 15% of your home equity into cash
  • Single-family homes, townhouses and condominiums are eligible
  • Doesn't impact credit worthiness nor charges interest rates
  • No payments for 30 years or until you sell your home
  • Five-year restriction period, where Unison won't share in the losses of your home's value, if you sell
  • May affect your eligibility for refinancing your mortgage
  • Must pay back the co-investment plus four times the percentage invested after 30 years

Unison is a home equity loan alternative that offers home co-investing. Basically, the company lets you borrow up to 15% of your home value in cash in return for a share of your home’s future value. Although you don’t have to pay them back up to 30 years or until you sell your house, this alternative has several potential drawbacks. For instance, you may not be able to refinance your home, and if you don’t sell your home you must pay back the original co-investment plus four times the percentage invested.

Home Equity Loans Guide

Home equity loans and home equity lines of credit are some of the most popular ways to finance home renovations. Both home equity loans and HELOCs may be tax-deductible when funds are used for home renovations.

Read our comprehensive guide to learn about how to get a home equity loan, the different options available, how they work and key factors to consider when choosing a home equity loan.

What is a home equity loan?

A home equity loan (HEL or HELOANS) is a fixed-term loan that uses the equity you’ve accumulated in your home as collateral. Often called a second mortgage, home equity loans let borrowers obtain a lump-sum payment that can be used for major home renovations, consolidating debts or paying for college tuition. This type of loan offers the option of paying it back in equal installments.

The loan amount depends on several factors, including your debt-to-income ratio (DTI), standard loan-to-value (LTV) ratio and combined loan-to-value ratio (CLTV). Typically, home equity loans are for 80% to 90% of the property’s appraised value. Loan terms include a fixed interest rate and fixed monthly loan payments for up to 30 years.

Home equity loans can have lower interest rates than credit cards or personal loans if you have a good credit score, but it puts you at risk of losing your home if you were unable to make payments. Do note that the first mortgage remains as the primary loan on a property if it still carries a balance.

How does a home equity loan work?

Home equity loans work as a second mortgage, allowing you to take out a loan against your property's value. As with your primary mortgage, your home is at risk of foreclosure if you can't make payments.

Home equity loans provide a one-time lump sum amount at a fixed interest rate. The maximum amount you're allowed to take depends on the value of your property and your credit history. Banks, credit unions and online lenders all offer home equity loans.

Naturally, the higher your home equity, the more you’ll be able to borrow. Banks will typically require you to have at least 20% in equity. If you don’t have that amount yet though, focus on building equity first. One way to do this is by making additional payments to your mortgage principal. Check our guide on how to build equity in a home for more actionable steps.

Current home equity loan rates

Home equity loan interest rates are typically on par with mortgage loan rates. HELOC rates, on the other hand, are variable and can be somewhat higher depending on the bank and the prime rate.

Current home equity loan interest rates range from 6.24% to 18.00% among the banks we reviewed. HELOC interest rates range from 4.50% up to 21%. In June 2023, the Federal Reserve announced a pause on interest rate hikes, after a year of raising rates. However, we may expect additional hikes by the end of 2023.

Check out our reviews for the best home equity loans to see what rates banks are currently offering.

How to calculate home equity

Home equity refers to the difference between your mortgage balance (what you owe) and the current market value of your home.

Your equity can increase over time as you pay down the principal and if the value of your property goes up. It can also decrease if your home value drops.

To calculate your equity, you need to determine the current market value of your home. In most cases, a certified real estate appraiser can help you obtain an official valuation.

Once you have your home’s value at hand, you just need to deduct your remaining mortgage balance (if you have one) from the current market value of your home.

For instance, if your home is worth $300,000 and you owe $175,000 of your mortgage, then your home equity is $125,000. The result is your equity, and it gives you a rough idea of how much you may be able to borrow.

If you’ve already paid your mortgage, then your equity is the full value of your home. (For a more in-depth explanation on how home equity works and how to calculate it, check out our article How Much Equity Do I Have in My Home.)

Home equity loan requirements

When determining if you qualify for a home equity loan, lenders will typically check if you meet the following requirements:

  • At least an 80% loan-to-value ratio, or the equivalent of 20% equity
  • A low debt-to-income ratio, preferably under 43%
  • A minimum credit score of 620 or higher
  • Own a qualifying home, such a single family home, townhouse or condo
  • Be employed, self-employed or retired and have a steady income
  • Supporting documentation, such as pay stubs, tax returns and W2s

Pros and cons of home equity loans

Here are some pros and cons to consider when deciding whether a home equity loan is the best option for you.

  • You get a fixed interest rate
  • Predictable payments for the life of the loan
  • Money can be used for any purpose (debt consolidation, paying for tuition, etc.)
  • Interest may be tax-deductible, if the loan is used for home improvement
  • Must use your home as collateral
  • You'll have a second mortgage if you're still paying the primary mortgage
  • You may have to pay closing costs, depending on the lender
  • You need significant equity on your home, typically between 15% and 20%

How to choose a home equity loan

When looking for a home equity loan, consider the following steps.

1. Understand your options

There are two different types of home equity loans: traditional home equity loans and home equity lines of credit. Traditional HELOANs give you a lump sum, whereas HELOCs work much like a credit card. Read the section on differences between home equity loans and HELOCs for more information.

2. Compare loan terms and repayment options

Regardless of which option you choose, make sure you understand all the costs associated with the loan or line of credit. If it’s a variable or adjustable-rate loan, know that your monthly payments will fluctuate with interest rates.

While mortgage rates remain low, your monthly payments will be low. However, those interest rates may start to go up at some point, which means your monthly payments will also increase.

3. Calculate how much you can borrow with a home equity loan

Most lenders require you to have a loan-to-value ratio (LTV) of 80% or less to qualify for a home equity loan.

This ratio takes into account the equity you have in your home and is an often-used measure of risk for lenders. The lower the LTV, the less of a risk you present to lenders.

To calculate your LTV, you need to divide your mortgage’s outstanding balance by your home’s current market value and turn that into a percentage. Let’s say your current mortgage loan balance is $175,000 and that your home is appraised at $250,000. This means you have a loan-to-value ratio of 70% and 30% equity.

Because most lenders require you to keep at least 20% of equity in the home, you would only be able to borrow against 10% of your equity — in this case, $25,000. (The home’s current value ($250,000) by 10%, gives you the amount you’ll be eligible to borrow).

Another (simpler) way to calculate how much you can borrow is to multiply your home’s current value by 80% and subtract what you still owe from the total.

4. Check closing costs for home equity loans

Just like with primary mortgages, home equity lenders may charge closing costs. These can range anywhere from 2% to 5% of your loan total. Lenders may also charge fees for loan origination, appraisals, title search and attorneys.

However, many lenders don’t charge some of these fees and may even be willing to waive closing costs altogether, on the condition that you won’t pay off the loan before a certain period of time (typically three years). If you close the loan before then, you must then pay back all the costs the lender covered.

Some lenders may also offer somewhat higher interest rates in exchange for reducing or covering closing costs or fees.

How to get a home equity loan

Once you’ve chose your home equity lender, you will typically need to follow these steps:

1. Get a professional home appraisal

A professional appraisal will give you an accurate idea of how much your home is currently worth in the market. This will let you determine whether you have enough equity to apply for a HELOAN or HELOC.

Keep in mind that lenders typically require you to have at least 15% to 20% of equity in your home.

2. Check minimum credit score requirements and your credit report

While some lenders require a minimum credit score of 620 for home equity loans, many may have higher minimums. As with most loans, the higher your credit score, the lower your interest rate. Borrowers with credit scores of 740 or higher will get the best rates.

You should also check your credit report and look for any discrepancies in your personal information, associated credit accounts or public records. If you find mistakes on your credit report, make sure to correct them before applying for a loan.

If you have bad credit, consider improving your credit before you apply. Check out our article on How To Get A Home Equity Loan With Bad Credit for some steps that might help you increase your chances of approval.

3. Gather documentation

Prepare the necessary documentation to support your home equity loan application. Commonly required documents include proof of income (pay stubs, W2s, tax returns), recent bank statements, utility bills to confirm your address and current mortgage statements.

4. Submit your application

Once you pick a lender, fill out the loan application. Make sure all the information you provide is correct before applying, this way you can avoid delays in the loan processing. Be ready to provide any additional information or documentation the lender may require.

Check out our guide on how to get a home equity loan for more information.

How long does it take to get a home equity loan?

Timing can vary greatly depending on the home equity lender. In most cases, it can take between two and four weeks to close the loan, whereas funding may take a few days after closing.

Factors such as how quickly you hand in the necessary documents, how long it takes to get your home appraised and whether there are any issues during the underwriting process typically affect approval times.

How to use a home equity loan

A home equity loan can add value beyond the property. Whether you want to improve the home itself, consolidate loans, invest in your future or prepare for emergencies, using your home equity can help you achieve your goals.

  • Home improvement - A popular use of home equity loans is for remodeling your home. It doesn’t matter if you remodel your kitchen or add a pool. Doing so not only makes your home more comfortable or enjoyable, but also increases its value.
  • Debt consolidation - You can also use this loan to consolidate your debts and possibly take advantage of a better interest rate. This frees up money you usually used to pay debts so you can put it towards savings or any other project.
  • Education - Another way you can use your home equity is to fund your or your child’s education. If it’s for you, getting a degree may mean improved job prospects or getting a promotion at your current job.
  • Unexpected expenses - Taking out a home equity loan is a way of covering expenses in case of an emergency or when one of your appliances breaks down. Investments - You can also use your home equity to start your own business or invest in a venture. By leveraging the value of your home you could potentially generate gains in other areas.

Alternatives to home equity loans

Aside from home equity loans, there are several ways to tap into your home’s equity: home equity lines of credit (HELOC), cash-out refinance loans and home co-investing.

Most of these loan options require equity in your home, but they all have different characteristics and qualification requirements.

Home equity lines of credit (HELOC)

A home equity line of credit, or HELOC, is a credit line that gives homeowners access to a certain amount of funds based on the accumulated equity in their home. This type of line of credit is a cross between a mortgage and a credit card, letting you tap into your home equity when needed.

Funds can be withdrawn at any time during a draw period — during this time, you can choose to pay only interest or make payments to the principal as well. Draw periods often last about 10 years and are followed by a 20-year repayment period. You can pay the borrowed amount plus interest during repayment as either a lump sum or in installments.

Cash-out refinance

A cash-out refinance replaces your old mortgage with a new one for a larger amount than the current balance. The difference between the old mortgage and the new one is paid out to you in cash.

Cash-out refinances typically have more favorable terms than traditional refinance loans, and you can then use the cash for home improvements, college tuition, debt consolidation or just about any other purpose. With this option, you would still have only one mortgage, but the loan application process could take longer and there may be additional fees and closing costs.

Home co-investing

Home co-investing is a home equity loan alternative that lets you tap into your home equity without borrowing against it. Instead of acquiring new debt, a home co-investment company (Unison is one example) or investor offers you money in exchange for a portion of your home equity and the option to share in future profits if your home’s value increases over time. They will also share in the losses, if your home decreases in value.

Home co-investing typically involves more lenient conditions than home equity loans and cash-out refinances. For instance, it typically doesn’t impact your credit score and does not require monthly payments. Home co-investing is also interest free.

However, note that eventually you’ll have to either buy the investor out or sell your home at the end of the agreement term. At which point, you have to pay the original investment amount and a percentage of your home's increased value.

Personal loan

A personal loan can also be an option if you don’t have enough equity or don't want to use your home as collateral. With a personal loan it’s possible to get funding faster too, typically within a week or even the same day. Since you’re not using your home equity, these loans don’t require a home appraisal, and you can avoid closing costs. Additionally, most personal loans don’t require collateral, unlike home equity loans or lines of credit. This means your home or other valuable assets will not be at risk if you were to default.

Keep in mind, though, that some personal loans feature origination fees and higher interest rates than home equity loans.

Home equity loan vs HELOC

When deciding between a home equity loan and a home equity line of credit, keep in mind these key differences:

Home Equity Loan HELOC
Most have a fixed interest rate. HELOCs typically have a variable interest rate, which can increase or decrease over time. (Some banks may let you convert your variable rate into a fixed rate later on)
Access to funds is through a single upfront lump sum. Allows you to withdraw funds as needed up to a preset credit limit for an established period of time (draw period).
Available with terms from five up to 30 years Typically has a 10-year draw period and a 20-year repayment period.
You pay interest plus principal for the determined repayment period. Options to pay interest only during the draw period are typically available.

Home equity loan vs. cash-out refinance

Although both home equity loans and cash-out-refinances are a way to get cash for home improvements or debt consolidation using some of your home equity, there are some differences to consider:

Home Equity Loan Cash-out refinance
Gives you a lump sum in exchange of your home equity, creates a second mortgage on the property. Pays you part of your home equity in cash, and replaces your existing mortgage with a new one.
The terms of the original mortgage won’t change. Instead, you’ll have two loans. You may refinance at a lower interest rate, if available.
Interest rates are typically somewhat higher than mortgage rates. Interest rates are typically lower because they’re based on current mortgage rates.
Tax deductible if the funds are used to improve your home. Interests on the principal are tax deductible as any other mortgage. You may also deduct the cash-out portion if used for home improvements.

Latest News About Home Equity Loans

  • A new report from Zillow points to a 6.5% rise in home values by the end of the year, with prices set to increase even more in 2024.

Best Home Equity Loans FAQ

What is equity in a home?


Home equity represents the value of your property minus any outstanding mortgage balance. For instance, if your home is appraised for $250,000 and you still owe $95,000 on your mortgage, you have an equity of $155,000.

Basically, the equity in your home is the amount you would receive if you sold your home at its appraised value and paid off your outstanding mortgage balance, without counting any closing costs.

How does a home equity loan work?

Home equity loans let you borrow money against your home's equity. If approved, you get a lump sum upfront, which can be used to consolidate debts or cover expenses like home repairs and tuition fees.

What bank has the best home equity loan?

Discover is among the banks with the best home equity loans, it offers low interest rates ranging from 6.24% to 13.99% and charges zero fees for loan origination, appraisals and closing costs. Other options include Connexus Credit Union, Regions Bank and U.S. Bank. Check out our best home equity loans reviews to read more about home equity products, rates and loan terms.

Can you refinance a home equity loan?

Yes, it's possible to refinance a home equity loan, just as you can refinance a traditional mortgage. Refinancing a home equity loan may be a good idea if you can secure better terms and lower interest rates than you currently have. However, the process and requirements for refinancing a home equity loan can will vary depending on the lender and your personal finances.

How We Chose The Best Home Equity Loans

To narrow down our list of best home equity loans, we vetted each mortgage lender by evaluating them on the following criteria:

  • Price transparency: We evaluated the loan types offered, minimum and maximum loan amount, interest rates, loan terms and credit score requirements for each lender.
  • Application process: We checked eligibility requirements and approval times. In addition, we compared application and evaluation fees, and whether application services were available online, by phone or in person.
  • Reputation and customer satisfaction: We looked into two main data sources: J.D. Power's 2022 U.S. Mortgage Servicer Satisfaction Study and complaint data as reported by the Consumer Financial Protection Bureau (CFPB).

Summary of Money’s Best Home Equity Loans of October 2023