A home equity loan is a fixed-rate installment loan that lets homeowners borrow a specific amount of cash to pay back over a set period of time. It can be a good option if you have a large expense to cover, such as a home repair or a medical bill. But there’s a major risk to keep in mind: When you take out a home equity loan, the lender uses your property as collateral. So if you miss multiple payments, the lender could foreclose on your home.
A variety of lenders, from home equity loan companies to banks and credit unions, can provide this type of funding. As with any loan, though, it’s crucial to shop around and compare offers from multiple lenders to make sure you get the best rate and terms for your situation.
Here are CNET’s picks for the best home equity loan lenders.
Top home equity loan rates for February 2024
|Max LTV ratio
|Up to 30 years
|7.99% (0.25% autopay discount included)
|5 to 30 years
|Connexus Credit Union
|5 to 15 years
|From 12.29% (0.25% autopay discount included)
|1 to 30 years
|80% for standard home equity loans, 90% for high-value home equity loans
|Fill out application for personalized rates
|Up to $500,000
|Third Federal Savings & Loan
|$10,000 to $200,000
|Up to 30 years
|From 7.06% (0.25% autopay discount included)
|$2,000 to $500,000
|15 to 20 years
|From 6.75% to 14.125% (0.25% autopay discount included)
|$10,000 to $250,000
|7, 10, 15, 20 or 30 years
|6.49% for 1st liens, 7.99% for 2nd liens
|$35,000 to $300,000
|10, 15, 20 or 30 years
|From 8.84% (0.5% autopay discount not included)
|5 to 20 years
Best home equity loan lenders for February 2024
What is a home equity loan?
A home equity loan offers you a one-time cash installment, which you’ll pay back over a set period of time. A home equity loan is similar to taking out a personal loan, except this loan is secured by the value of your home ( specifically, the difference between what your home is worth and what you owe on your mortgage). If you default on payments for any reason, the lender could take your home as payment.
The amount you can borrow with a home equity loan is determined by the amount of equity you have. Most lenders cap the amount you borrow to more than 85% of your home’s equity, but that number will vary from lender to lender.
Money from a home equity loan can be used for anything, ranging from home renovation projects to consolidating variable rate debt. A home equity loan is best for borrowers with fixed costs and a defined goal for your money.
Unlike a HELOC, a home equity loan typically has a fixed interest rate, so your monthly payment will be the same over the term of your loan.
Which type of home equity financing is right for you?
Home equity loans and HELOCs are similar in that you’ll secure financing with the value of our home. But how your funds are distributed and the rate at which you pay the loan back will be different.
Home equity loan
A home equity loan is a one-time cash installment that you borrow and pay back over time. Home equity loans almost always have a fixed interest rate, meaning your monthly payment won’t change as rates bump around.
Home equity line of credit (HELOC)
HELOCs function similarly to credit cards. You can take out money as needed, up to your total line of credit, during your draw period (usually 10 years). Just like with credit cards, there’s a limit on how much you can borrow at once. After your draw period ends, you’ll enter your repayment period and make payments toward both the interest and principal (how much money you’ve borrowed) on your loan.
The interest rates for a HELOC are usually variable, so rates will generally rise and fall along the prime rate.
Alternatives to home equity loans
If a home equity loan isn’t the right move for you, there are other financing options.
As noted above, a HELOC offers you a revolving line of credit against the equity you’ve built in your home. A HELOC is a good choice if you’re unsure of how much money you need or you need access to an ongoing source of cash over a period of months or years.
Personal loans tend to have higher interest rates than home equity loans, but they’re less risk because you don’t put your home up as collateral. When you take out a personal loan, you receive a one-time cash infusion that you pay back over the life of the loan.
Unlike a home equity loan or HELOC, a cash-out refinance replaces your existing mortgage with a new mortgage. Ideally, that new mortgage has a lower interest rate and more favorable terms. A cash-out refinance provides you with an upfront sum of cash that’s then added back onto the balance of your new mortgage.
How to get a home equity loan
Applying for a home equity loan is similar to applying for a mortgage. You’ll first want to interview multiple lenders to determine which lender can offer the lowest rates and fees. The more companies you speak with, the better your chances of finding favorable terms.
You’ll also need equity in your home. Almost all lenders require you to have at least 15% to 20% equity in your home before being considered for a home equity loan. Lenders will then take into account your credit score, income and current debt-to-income ratio to determine your interest rate.
Be prepared with financial documents, such as pay stubs, W-2s, proof of ownership and the appraised value of your home. Once you submit your application, the final step is closing on your loan.
Requirements for a home equity loan
Although it varies by lender, to qualify for a home equity loan you’re typically required to meet the following criteria:
- Have at least 15% to 20% equity in your home: In order to know your home equity, i.e., the amount of home you own, subtract what you owe on your mortgage and other loans from the current appraised value of your house.
- Adequate, verifiable income and stable employment: Proof of income is a standard requirement to qualify for a home equity loan. Check your lender’s website to see what forms and paperwork you need to submit.
- A minimum credit score of 620: Lenders use your credit score to determine the likelihood that you’ll repay the loan on time. Having a stronger credit score will help you qualify for a lower interest rate and more amenable loan terms.
- A debt-to-income ratio of 43% or less: Divide your total monthly debts by your gross monthly income to get your DTI. Like your credit score, your DTI helps lenders determine your capacity to make consistent payments toward your loan. Some lenders prefer a DTI of 36% or less.
How to find the best home equity lender
You don’t need to get your home equity loan from the same mortgage lender you already have, though it may make sense to do so. Shopping for a different lender and comparing offers might help you secure a lower interest rate. Be sure to ask questions upfront to understand what rates and fees are associated with your home equity loan.
Remember, the rate a lender advertises isn’t always the rate you qualify for. Your exact interest rate will depend on multiple factors, including your DTI ratio, LTV ratio and loan amount. The lowest rates are generally reserved for borrowers with a good credit score and clean credit history.
Also, make sure to look at the lender’s APR, not just the interest rate. The APR includes fees, so it will be a more accurate figure of what you’ll pay.
A good lender will make you feel comfortable with the borrowing process and make sure you understand what upfront or ongoing fees apply to the loan.
When comparing lenders, also consider how convenient the application process is, if there are any local branches available to you, the lender’s customer support options and any available rate discounts available.
We evaluated a range of lenders based on factors such as interest rates, APRs and fees, how long the draw and repayment periods are, and what types and variety of loans are offered. We also took into account factors that impact the user experience such as how easy it is to apply for a loan online and whether physical lender locations exist.