What Amounts Are Available for Home Equity Loans?

Find out how much you can borrow for home equity

You can borrow money through a home equity loan according to the amount of equity you have in your home. A home equity loan has a maximum amount that can be borrowed for various purposes, including repairs and renovations. There are numerous banks, credit unions, and lenders where you can obtain a home equity loan, but each one may have a different maximum loan amount. Start by assessing how much equity you have in your home if you're considering taking out a home equity loan. Then, compare interest rates and repayment terms to find the best suits your requirements.

Main Points:

You can borrow money through a home equity loan, a type of the second mortgage, based on the amount of equity you have in your house.
Home equity is the difference between the amount you owe on your mortgage and the potential sale price of your home today.
The amount of equity you have in your home will determine how much you can borrow in a home equity loan. Depending on a few different variables, you can typically borrow up to 80% or 85% of the equity in your home.
You can use a home equity loan for various things, including home repairs, college expenses, unexpected expenses, etc.

A Home Equity Loan: What Is It?

A loan based on the equity you have in your home is called a home equity loan. Home equity loans frequently have fixed interest rates, meaning they won't change throughout the loan. It might be a good idea to decide how much you want to borrow before applying for a home equity loan because you will receive a lump sum from the loan. Although you can use a home equity loan for almost anything, it is frequently used to finance home improvements, renovations, or repairs. You can also use it for private purposes like weddings, vacations, college expenses, or debt consolidation.

Important:

A particular kind of the second mortgage is a home equity loan. Your home secures this kind of loan as collateral. Your lender may foreclose on your home if you are late on your repayments.

Maximums for Home Equity Loans

A home equity loan has a maximum borrowing limit. Typically, you can only borrow up to 85% of your home's equity. The actual amount that you as an individual can borrow, even with the 85 percent cap, is determined by your credit history, income, and the market value of your home. Let's say, for illustration, that you own a house with a $330,000 value. Your 30-year mortgage still has $220,000 to be paid. This indicates that your home is worth $110,000 in equity. A lender might most agree to lend you if you apply for a home equity loan is $93,500 (or 85% of your $110,000 in home equity). Your income and credit history still play a role in this, though. The lender might only approve you for $60,000 in a home equity loan if your credit score isn't the best and other things work against you. Let's say you purchased a house similarly, but the property is only worth $300,000. You still owe $220,000 on your mortgage, so your home is worth $80,000 to you. If your finances are in order and your credit is excellent, your lender might grant you a loan for the entire $68,000, or 85 percent, of the value of your home. Everything is dependent on the lender and your financial situation.

Other Conditions for Home Equity Loans

Before applying for a home equity loan, you must verify a few additional requirements in addition to homeownership.

Credit Rating

You are more likely to be approved for a loan with the lowest interest rate possible, the higher your credit score is. If you qualify, a low credit score may make it more difficult for you to obtain the loan you want, or it may result in a higher interest rate and a smaller loan amount.

Tip:

It might be simpler to be approved for a home equity loan if you have good or excellent credit—a FICO score of 670 or higher. However, each lender has its eligibility requirements, so before applying, check your credit report for free to ensure that any errors have been fixed and are in good condition.

The ratio of Loan-to-Value (LTV)

Your mortgage's value concerning your home's market value is known as your loan-to-value (LTV) ratio. The greater the risk you pose to lenders, the higher your LTV. This may reduce your ability to obtain a home equity loan or result in a higher interest rate. By dividing your mortgage's principal balance by your home's market value, you can determine your LTV. Your LTV would be about 67 percent, for instance, if your mortgage balance is $200,000 on a $300,000 home. Before applying, lenders will probably require you to have an LTV of less than 80% or 85%.

Sum borrowed

Some lenders might require a minimum loan amount. For instance, U.S. Bank had a minimum home equity loan of $15,000 in October 2021. Other lenders might specify a cap on loan amounts (in addition to the 80 percent or 85 percent cap). For instance, the maximum home equity loan amount at NIH Federal Credit Union is $250,000

Your debt to income percentage

Your debt-to-income (DTI) ratio is calculated as the difference between your gross monthly income and your monthly debt payments. You are more likely to be approved for a home equity loan the lower your DTI is. This might also affect whether you qualify for a home equity loan. Lenders want to be sure that you will be able to make loan payments even in the event of an emergency, like losing your job.

Note:

Although your home serves as the security for home equity loans, several other factors may affect your borrowing capacity and the lenders you access. Before applying for a home equity loan, compare as many lenders as possible.

Differentiation of home equity loans and lines of credit (HELOC)

Although both home equity loans and home equity lines of credit (HELOC) are available as borrowing options, they aren't the same. Each has a different goal, and both have credit score requirements. A HELOC might be the best option for your situation if you have ongoing home repairs or renovations. A home equity loan may be the best option if you're planning a significant remodel and know precisely how much the project will cost.

The conclusion

You might be eligible to apply for a home equity loan if your home has enough equity—typically 20% or more—to do so. Although some lenders may have lower maximums, you can typically borrow up to 85% of the home equity. 1 You could use the money from a home equity loan to cover specific home improvements, repairs, or remodels, or you could use it to cover other expenses like a wedding, college tuition, or medical costs. Before applying, make sure you can comfortably make the loan payments. Remember that if you fall behind on payments, the lender may foreclose on your home and place a lien on it.

Frequently Asked Questions(FAQs)

Do home equity loans have a minimum credit score requirement?

The minimum loan amount may vary because each lender has different guidelines and conditions for home equity loans. Before applying, research each lender to make sure it will meet your needs. Additionally, you might need to meet a minimum equity requirement in your house to be eligible.

What is the right time to apply for a home equity loan?

The processing of a loan request may take several weeks. The funds might not be available for three days as well. An underwriter was required to verify and examine your financial records when applying for a mortgage. For a home equity loan, a similar procedure is followed.

Where is a home equity loan available?

A bank, credit union, or online lender are all options for obtaining a home equity loan. It's a good idea to review multiple offers and evaluate them all. Find out which lender offers the best terms for repayment, the lowest interest rates, and the fewest fees. Check your eligibility before applying, and if you can't qualify on your own, look for a trustworthy co-signer who can.