Where to get a home equity loan: finding the best lender for your needs
Key takeaways
- Home equity loans can be obtained from various lenders such as banks, credit unions, mortgage lenders, and online-only lenders.
- Most lenders will require a minimum amount of equity in the home, a good credit score, and a low debt-to-income ratio in order to qualify for a home equity loan.
- It is important to compare rates and fees from different lenders and different types of lenders to find the best deal in a home equity loan.
The average American mortgage-holding homeowner is sitting on close to $313,000 in equity, according to property information and data analyst ICE Mortgage Technology — a substantial ownership stake, and up roughly $100,000 since pre-pandemic days. To enable people to tap into that equity, obtaining cash for different needs, many lenders offer home equity lines of credit (HELOC) or home equity loans.
Traditionally, you sought such home equity financing from your friendly local bank or savings and loan association. Now, though, there are several other types of institutions that provide them as well. Home equity products have been a booming business since home prices and values took off in 2020.
Whatever your financial goals are, here’s where you can get a home equity loan today.
Where to get a home equity loan
Most lenders in the mortgage business provide home equity financing, but not all products may be available in all states (especially when it comes to HELOCs). Conversely, there are some firms that specialize in home equity loans and HELOCs, but don’t do purchase mortgages.
Banks
While a few halted their home equity offerings during the pandemic, many multi-state retail banks like Bank of America, Citizens Bank and PNC Bank feature home equity-related financing. In fact, eight out of the 10 largest home equity lenders are traditional banking institutions (the aforementioned trio are the top three on the list). You might especially benefit from going to one if you already have an account or do business there.
Banks that offer home equity financing:
- Bank of America
- Citizens Bank
- PNC Bank
- U.S. Bank
- TD Bank
- Huntington National Bank
Advantages of applying for a home equity loan from a bank:
- Institutions often offer discounted rates or suspend fees when the borrower is a current customer.
- They offer a variety of services and products, which can lead to convenience and savings — making the monthly loan payment from an in-house checking account, etc.
- You can visit a physical branch to apply or meet with a loan officer to discuss your funding needs — a significant upside if you’d prefer not to solely rely on phone or chat support.
Credit unions/savings and loan associations
Credit unions and savings and loans (aka “S&Ls” or thrifts) also offer home equity products. Though some are publicly traded companies, most are private, not-for-profit financial institutions with a cooperative structure: They are owned by their “members.” Originally, these members were aligned by factors like location, profession/industry or employment by a particular company. Nowadays, though, many operate on a regional or national level, basically opening up membership to anyone.
Credit unions and S&Ls that offer home equity financing:
- Alliant Credit Union
- Third Federal Savings and Loan
- PenFed Credit Union
- Navy Federal Credit Union
Advantages of applying for a home equity loan from a credit union or an S&L:
- They are often smaller institutions, existing to meet the needs of their member-owners. Service is often more personalized and hands-on.
- As not-for-profits, they have no commercial ax to grind, which often translates to lower fees, better rates or other more attractive terms.
Mortgage lenders
A non-bank mortgage lender is simply a lender that doesn’t deal with consumer deposits or other services that retail banks routinely offer: It’s all home loans, all the time. It might be an independent mortgage company, an online lender or both. If you bought your home with a mortgage lender like CrossCountry Mortgage, Rate or Lower, you might also find home equity financing with them. Online mortgage companies like Rocket Mortgage also now offer home equity products.
Mortgage lenders that offer home equity financing:
- CrossCountry Mortgage
- Rate
- Lower
- Rocket Mortgage
Advantages of applying for a home equity loan from a mortgage lender:
- Mortgage lenders generally feature a broader range of home equity loans, which means you could have more options to choose from.
- Mortgage lenders specialize in home financing. So, they have extensive knowledge of the market and can offer expert advice tailored to your situation.
Online-only lenders
When you work with an online lender, the entire application process often happens without any face-to-face interaction. These companies don’t have branch locations; instead, they operate exclusively online.
Online-only lenders that offer home equity financing:
Advantages of applying for a home equity loan from an online-only lender:
- Online lenders often offer faster approvals and funding times. Their speed is particularly beneficial if you need the money to cover emergency expenses.
- You may find more competitive interest rates with online-only lenders. They have lower overhead costs compared to brick-and-mortar banks, and can pass these cost savings on to you.
What’s the best place to get a home equity loan?
It depends on what you define as “best.” If it’s a matter of the cheapest rates, online lenders are known to offer more competitive interest rates on home equity loans, since they don’t have to maintain physical offices. That said, some of the best introductory offers come from traditional financial institutions. Bank of America, for example, is known for its aggressive HELOC teaser rates that currently are more than two percentage points below the HELOC national average.
Credit unions are also able to offer extremely competitive rates and loan terms. In fact, if you look beyond a loan’s interest rate to the annual percentage rate (APR), which also rolls the cost of closing costs and other charges into the equation, you’ll often get the best deal at this sort of lender: As not-for-profit businesses, they tend not to ding you with fees. They often offer more personalized service, too.
If it’s fast funding you’re after, an online lender could be the best bet. They often move more quickly in processing and underwriting your loan application. Better, for example, with its One Day HELOC returns approval decisions within 24 hours, and provides money within a week.
Some might argue that the best place to get a loan is a lender you already have a relationship with. Banks often extend discounted rates or suspend fees for existing customers, and you might have an easier time getting approved as well – if the institution happens to be your primary mortgage lender, say.
But don’t assume anything. The best way to obtain the most competitive home equity loan for your needs and financial profile is to shop around and compare offers, terms and product options from multiple lenders.
Requirements for home equity loans
The lending criteria for home equity loans vary by financial institution. However, here’s an idea of what most will expect from homeowners looking to use their property as collateral:
- Amount of equity in home: At least 15 to 20 percent
- Credit score: Mid to high-600s, although a minimum 700 is preferred
- Debt-to-income ratio (DTI): No more than 43 percent, although some lenders allow up to 50 percent
- Income: Sufficient verifiable income to make timely loan payments (especially in light of DTI)
- Loan-to-value ratio (LTV): No more than 85 percent [for all home-based debt]
- Payment history: Demonstrated credit history/record of timely payments on outstanding debts
Of course, any lender will evaluate your particular financials, too, in the final loan terms they offer you.
Required documents when applying for a home equity loan
Here’s what you’ll typically need to provide to apply for a home equity loan:
- Driver’s license, state-issued ID or passport
- Social Security number
- Proof of employment/employer’s contact information
- Two most recent pay stubs and W-2 statements
- Employment history and dates
- Proof of income for the past two years (i.e., tax returns and 1099s if applicable)
- Documentation to prove you own the property
- Declarations page from your homeowners insurance policy
How to choose a home equity loan lender
Although you can always start with the lender who provided your primary mortgage, that’s not your only option — or even your best option. With many more sources for a home equity loan beyond the bank, it’s best to compare different types of lenders so you’ll have a sense of which offer the lowest rates and fees and the most convenience or perks.
And transparency, too. “You should look for a lender who is upfront with you about the entire loan process, especially the requirements needed to get a loan,” says Rob Cook, Vice President and CMO for Discover Home Loans. “Look for a lender with a history of great customer service, who is upfront with you about the process from start to finish – especially the requirements to get a loan,” he adds.
Home equity loans, like primary mortgages, have closing costs. “Costs and fees are an important consideration for anyone who is looking for a loan,” says Cook. “Some lenders provide you the opportunity to obtain financing with no origination fees or cash due at closing,” he adds. Still, many home equity lenders may offer attractively lower rates but charge higher fees. Before committing to an offer, make sure you understand your all-in expenses.
Finally, if you’re getting a home equity loan, know exactly how much you need to borrow — or, in the case of a home equity line of credit (HELOC) — the maximum amount you’ll probably need; don’t just accept whatever the lender is willing to offer you, which might be more than you requested. More debt incurs more interest, which means bigger monthly payments. Remember: You’re tapping your home equity — an asset — and you’ll need to be able to repay the loan or risk losing your home.
FAQ
Additional reporting by Mia Taylor
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