What is a Home Equity Loan?
A home equity loan allows you to borrow against the portion of your home that you already own – your home equity. Often called a second mortgage or equity loan, this type of financing provides a lump sum of cash that can be used for nearly any purpose, including home improvements, debt consolidation, education expenses, or major purchases.
With a home equity loan, you repay the borrowed amount in fixed monthly payments over a set term, typically with a fixed interest rate. Because your home is used as collateral, home equity loans often offer lower interest rates compared to unsecured loans. Most lenders allow you to borrow up to about 85% of your home’s value, depending on your credit profile, income, and existing mortgage balance.
For homeowners looking to access cash while keeping predictable payments, a home equity loan is often considered one of the best home equity financing options available.
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How Do Home Equity Loans Work?
The process of applying for a home equity loan is similar to getting a traditional mortgage. Whether you apply online or in person, lenders typically require:
- Your Social Security number
- Employment history and employer information
- Proof of income (pay stubs, tax returns, W-2s)
- Alimony or child support details, if applicable
- A current mortgage statement
- Home appraisal information
- Proof of homeowners insurance
- Documentation of any existing liens
Your credit score, income, payment history, and combined loan-to-value (CLTV) ratio determine how much you can borrow and which home equity loan rates you qualify for. Most equity loans have fixed rates, though variable-rate options do exist.
From application to funding, the process usually takes two to six weeks. Online lenders are often faster than banks or credit unions, making them a popular choice for borrowers searching for the best place for home equity loan.
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What Determines Home Equity Loan Rates?
Understanding what affects your rate can help you qualify for the best home equity loans. Key factors include:
Credit score – Higher credit scores typically unlock lower rates. Improving your credit before applying can significantly reduce borrowing costs.
Loan-to-value (LTV) and CLTV ratios – The less you borrow relative to your home’s value, the more favorable your rate is likely to be.
Income and debt-to-income (DTI) ratio – A lower DTI shows lenders you can comfortably manage additional payments.
Loan amount and term – Shorter terms often come with lower interest rates but higher monthly payments.
Market conditions – Broader economic trends and interest rate changes influence available offers from lenders.
By understanding these variables, borrowers are better positioned to secure the best home equity loan for their financial situation.
How to Evaluate Your Home’s Equity
Your available home equity is calculated using a simple formula:
Home value − mortgage balance = home equity
For example, if your home is worth $300,000 and you owe $180,000 on your mortgage, you have $120,000 in home equity. That equity helps determine how much you can borrow and whether you qualify for the best home equity loans.
Lenders also review your LTV and CLTV ratios to ensure your total borrowing stays within acceptable limits – usually no more than 85% of your home’s value.
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When Should You Get a Home Equity Loan?
Most lenders require at least 20% home equity before approving a loan. The more equity you have, the better your rates and terms are likely to be. Your DTI ratio also matters, with many of the best home equity lenders preferring 43% or lower.
Because equity loans are secured, borrowers with less-than-perfect credit may still qualify. This makes them an appealing alternative to credit cards or personal loans, especially when used for practical purposes like home improvements or debt consolidation.
Home Equity Loan vs HELOC
When comparing borrowing options, many homeowners weigh home equity loan vs HELOC.
A home equity loan provides a lump sum with fixed interest rates and predictable payments over a set term, usually 5 to 15 years.
A HELOC (home equity line of credit) offers a revolving credit line with variable interest rates, a draw period, and a longer repayment timeline.
If you value payment stability and long-term planning, a home equity loan may be the better choice. If flexibility matters more, a HELOC could be worth considering.
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How to Choose the Best Home Equity Lender
How to get home equity loan that’s right for you starts with choosing the right lender. To secure the best home equity loans, you should:
- Compare home equity loan rates and APRs
- Review fees, closing costs, and repayment terms
- Evaluate lender reputation and customer service
- Look for easy-to-use digital tools and dashboards
Using a marketplace can help you compare home equity loans side by side, making it easier to identify the best home equity loan for your needs. Shopping around is one of the most effective ways to find the best place for home equity loan and avoid overpaying in interest.
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FAQ
Why should I get a home equity loan?
A home equity loan gives you access to a large lump sum with relatively low interest rates, making it ideal for major expenses or long-term financial goals.
How hard is it to get a home equity loan?
Most lenders require a credit score of at least 620 and 20% equity. Stronger credit and more equity improve your chances of approval and better rates.
Can I get a home equity loan with poor credit?
Yes, some lenders accept lower credit scores, though interest rates may be higher.
What is a good rate for a home equity loan?
Rates vary by borrower profile, but strong credit borrowers often qualify for the most competitive offers.
How do I get the best home equity loan?
Improve your credit, reduce debt, maintain healthy equity levels, and always compare home equity loans from multiple lenders to find the best option.
Disclosures:
Better Mortgage Disclaimer
Assumes borrowers are eligible for the Automated Valuation Model (AVM) to calculate their home value, their loan amount is less than $400,000, all required documents are uploaded to their Better Mortgage online account within 24 hours of application, closing is scheduled for the earliest available date and time, and a notary is readily available. Funding timelines may vary and may be longer if an appraisal is required to calculate a borrower’s home value.
Figure disclosure
¹Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with our remote online notary, and where loan amounts are under $400,000 which would not require an appraisal. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing, or that require a waiting period prior to closing, or where loan amounts exceed $400,000.
²Our loan amounts range from a minimum of $15,000 to a maximum of $750,000. For properties located in AK, the minimum loan amount is $25,001 and for properties located in TX, the minimum loan amount is $35,000.
Your maximum loan amount may be lower than $750,000, and will ultimately depend on your home value, lien position, credit profile, verified income amount, and equity available at the time of application. We determine home value and resulting equity through independent data sources and automated valuation models or appraisal. Loan amounts above $400,000 are subject to appraisal.
*Available APRs range from 6.35% - 14.9%, which includes the payment of a higher origination fee in exchange for a reduced interest rate, which is not available to all applicants or in all states. The lowest APRs are only available to the most qualified applicants, depending on credit profile and the state where the property is located, and those who also select five year loan terms; APRs will be higher for other applicants and those who select longer loan terms. Your actual rate will depend on many factors such as your credit, combined loan-to-value ratio, loan term, occupancy status, and whether you are eligible for and choose to pay a higher origination fee in exchange for a lower rate. Rates change frequently so your exact APR will depend on the date you apply. APRs for home equity lines of credit do not include costs other than interest. You will be responsible for an origination fee of up to 4.99% of your initial draw, depending on the state in which your property is located and your credit profile. You may also be responsible for paying the costs of valuation if an AVM is not available for your property ($180), or an appraisal if your loan amount exceeds $400,000 ($500-$2,000, depending on property type, property value, and state), manual notarization if your county doesn’t permit eNotary ($350), and recording fees ($0 - $315) and recording taxes, which vary by state and county ($0-$1,400 per one hundred thousand dollars borrowed). Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone.
Upstart Mortgage, LLC dba Upstart Home Lending. NMLS #2443873 Disclaimer
Terms shown here are subject to change without notice. APRs for initial advances range from 6.52% to 18.00% based on rates offered as of July 2025. The lowest rate is only available to consumers willing to become a member of a credit union and to those who meet a minimum FICO score of 780, CLTV under 70%, and DTI under 45%. Your actual rate will depend on many factors such as your credit history, combined loan-to-value ratio (CLTV), line amount, loan term, lien position, and property state. Origination fee to open an account is between 0% and 4.99% of the approved credit limit. The Annual Percentage Rate (“APR”) is variable and based on the Prime Rate as published in the Wall Street Journal “Money Rates” table plus or minus a margin. Your APR will never be less than 3.99% or greater than 18.00%. Property insurance is required.
In July 2025, 10% of funded HELOCs achieved a closing timeline of 3 days or less and a funding timeline of 9 days or less. This timeline assumes consumers close with our remote online notary, provide supporting documentation promptly, and ensure the information provided is accurate and consistent with our verification process. Delays, discrepancies, and other unforeseen factors may impact the closing timeline.
Unlock disclaimer:
Terms and Conditions Apply
Not all homeowners will qualify
Not available in all states
Home equity agreements are offered by Unlock Home Equity Solutions, Inc.
In certain states NMLS #2657081
Aven Disclaimer
Aven Visa Credit Cards are issued by Coastal Community Bank, pursuant to a license from Visa U.S.A., Inc. Aven accounts are made by Coastal Community Bank, Member FDIC. Equal Housing Lender. NMLS #462289.