Why Should You Get a Home Equity Loan

We reviewed many companies that offer home equity loan services, and found 10 of the best. In our top 3 performers are LendingTree, followed by TD Bank, and then Citizens Bank.

One of the main benefits of owning a home is that you know you are not wasting your money on rent. Instead, as you make payments on your loan, your mortgage payments also build equity. This way, if you ever sell your house, you know you will get back part of the money you have put into it.

Additionally, a home equity loan can also be a good option if you suddenly have expenses that are surprisingly bigger than you thought they would be, or you want to tap into that equity for repairs and home improvement.

You may choose from two types of equity loans – lump sum (monthly payments) or home equity line of credit (HELOC). Either loan types are based on your home’s equity, but they work differently from each other, which will be further discussed below.

The PROs and CONs

Home equity loans can be used to finance nearly anything. However, it’s not a typical debt loan, but rather you spending an investment. Think of it this way: when you take out a home equity loan or HELOC, you are subtracting from an investment you have been contributing to for years. As such, you should not spend these funds lightly, irresponsibly, or for thoughtless purposes.

We understand, however, that there will be times when you might need additional funds. Such justifiable expenses would include borrowing against your home equity so that you may increase the value of your home via repairs and improvements. Another example is using home equity loans to pay for your children’s education.

Home equity loans and HELOCs have many pros and cons. On one hand, one of the upsides is that these often have lower interest rates compared to other loan types or credit cards. HELOCs usually have a lower initial interest rate compared to traditional fixed-rate equity loans. It should be noted, though, that because HELOCs have variable rates, the rates may be significantly higher toward the end of paying off your loan compared to when you started.

On the other hand, home equity loans have additional fees such as closing costs, something that you won’t find or have to do when paying with credit cards. It should be noted, however, that most companies can waive closing costs. This happens when you pay off your loan early. Another con is having other additional fees to pay, depending on the lender.

With just about any other loan available to you, understand that there will always be risks involved. The main one would be defaulting on the loan – you may lose your home as these types of loans use your home as collateral. For the HELOC in particular, a second risk could happen when you get a significant credit limit (such as $100,000, for example) and then you borrow the full limit. You will have very large, often unmanageable monthly payments. To avoid these from happening, be sure to make an honest assessment of what you can afford.

Taking Advantage of Your Equity

Traditional Equity Loan

When choosing between a traditional loan or a line of credit, make sure you know and understand what each type is about, as well as its pros and cons. An equity loan gives you a single lump sum all at once, and then you make set monthly payments. Traditional equity loans are fixed rate, so they do not change within the loan duration. You will pay the same cost for principal and interest each month, although taxes may affect the monthly total.

A home equity loan is a good idea if you need a large amount of money instantly rather than over time. You have a set rate and payment over the loan term which never changes or fluctuates. However, you cannot borrow any further funds after, unlike in a line of credit.

Home Equity Line of Credit

If you want to use your equity the same way you do a credit card, you may receive a line of credit from which you can borrow when you need the money, and then you can make monthly payments too. With a HELOC, you have a draw period when you can withdraw money up to your approved credit limit. Once this draw period ends, the repayment term starts – you can then pay back the remaining balance just like a regular loan. HELOCs have variable rates, meaning they change over time.

HELOC may be the better option for you if you need steady funds that are spread over a longer period of time rather than a large sum all at once. Additionally, just like credit cards, you pay little to no interest provided you pay off the principal amount on time. However, a variable rate may seem unattractive to some people. Additionally, many services may require that you draw a minimum amount upon closing.

Mortgage Refinancing

Mortgage refinancing, often called a second mortgage, helps you create a new and lower loan based on the equity you have in your home. This way, you can either lower your interest rate, or use a cash-out option to use the equity you have built. For example, you have a property worth $200,000 with a remaining mortgage balance of $100,000. If you get the balance refinanced to $120,000 mortgage, you are essentially keeping the $20,000 of the equity which you have built.

Compared to a home equity loan, refinancing has lower rates – but its closing costs are higher. Over time, these seemingly big differences may just balance each other out. As mentioned above, many factors can affect your decisions.

Reverse Mortgage

A reverse mortgage is another option wherein you can tap your home’s equity. However, it comes with an age requirement of 62 years old, among other stricter requirements. For instance, most lenders prefer that you actually own the property outright, or have only a small amount left to pay on your mortgage. It is similar to an equity loan in the sense you can receive the loan amount in a single lump sum, or in equal monthly installments given by the creditor. You receive the payments rather than making them each month, thus the name “reverse mortgage.”

As with other loans, there are pros and cons to reverse mortgages. Remember that you will have higher fees compared to the typical rates in other loans, including origination fees, higher interest rates, and insurance premiums. Additionally, should the housing market drop, you will end up owing more than what your home is actually worth. Lastly, as previously mentioned, the requirements are stricter in order for you to qualify.

What You Should Know

Just like all other loans, home equity loans and HELOCs have terms, conditions, and other fine print involved. It’s important to understand how these loans work, including what your rates are, if they are fixed or variable, what the loan’s term is, the basic process, and if you are qualified for the loan or not.

Eligibility

The first step to getting a loan is finding out if you are eligible. You must meet a few minimum requirements, mainly your loan-to-value (LTV) ratio. This is figured by dividing the amount you owe on your mortgage by the property’s appraised value. Most loan companies prefer this to not exceed 80%.

Lenders would also look at the amount of equity you have acquired. When they examine equity, companies consider how much equity you have and then compare it against the loan amount you want. Most companies allow 80-90% of your home’s total equity, although there will be the rare case a company is willing to lend the full 100%. Other companies also require a minimum specific dollar amount.

Companies also consider your credit score, as well as your debt-to-income (DTI) ratio. Most would require good or excellent score, which on average is a minimum FICO score of 660 to 700. Some services may accept lower FICO scores depending on other factors. As for DTI, the average accepted is around 40%. However, each lender or provider has their own requirements, subject to their discretion.

Most lenders have an online application, which allows a soft credit pull that helps figure out if you qualify for a loan. If you do and you accept either a home equity loan or HELOC, you will then need to provide more information and required documentation, including proofs of income, mortgage, employment, and other supporting documents.

Rates & Fees

Home equity loan rates and fees will vary per company, but there will also be some similarities due to either industry standards or tough competition. Interest rates often are subject to change, plus your personal situation and credit worthiness would also directly affect the rates you qualify for.

Other typical loan fees apply most of the time, although some lenders waive certain fees. One of the most common is having closing fees, the amount of which varies depending on the lender. They may also wish to complete its own appraisal of your home, so you may end up paying an appraisal fee too.

Lastly, although quite uncommon, some loan providers would also charge an application fee. Though most do not ask for it, it’s still helpful to ask. There will also be other less obvious fees you may ask about such as maintenance fees and early payoff fees.

Payments & Terms

The term of your loan is set at closing; however, know there are different options when it comes to lengths and different processes, all depending on the loan type. For traditional home equity loans, the most common is 30 years, though many provide a 15-year option.

A HELOC has a draw period as well, which is usually between 5-10 years. After this draw period ends, your repayment term starts. On average, it’s an additional 10-15 years, but it may vary depending on your loan’s conditions.

What are the Results of our Review

In this review of the top 10 home equity loan services, we considered and criticized many factors, mainly eligibility requirements. Lenders that have higher accepted LTV and DTI ratios, as well as higher maximum loan amounts and lower minimums may mean you’re more likely to qualify. However, your actual eligibility and final loan approval would still rely on several factors. Such examples would be Key Bank and Bank of America, which both accept a higher LTV ratio only, while lenders like Citibank accept a higher DTI. When it comes to overall flexibility requirements, we really stand by LendingTree as the best choice. As a broker, they connect you to their large network of lenders which gives you more options to choose from, including many top 25 lenders and other highly reputable companies.

We also found that loan amounts will vary wildly, ranging from as little as $10,000 to as much as $500,000. Among the lenders on our list, Key Bank has the lowest minimum while U.S. Bank has the highest maximum.

In this review, we also considered each lender’s customer service and support. We contacted these companies by phone and email, evaluating their responses and support they gave to questions we presented. We included how easy or difficult our applications were considered. Based on these, we have assessed that Third Federal Savings & Loan provides the best overall customer experience. They and Citibank also provided accurate information, as well as the feeling they were more than willing to answer our questions. In addition, TD Bank and Wells Fargo also have some of the best customer support options, including their quick email replies, as well as having hundreds of branches spread across the country if you prefer in-person support. We think as far as getting the most simplistic process, Wells Fargo, TD Bank, and Third Federal are the best choices when it comes to quick underwriting turnaround time as well as funds available right when you close on your loan.

For closing costs, it’s important to remember these may add up. In our list of top 10 home equity loan services, most lenders are likely to waive these closing fees. However, you may still pay for some fees like the early payoff fee. Among lenders that do charge closing costs, you will end up paying around a few hundred dollars. If a company waives closing costs, it may expect you cover them if you pay off your loan early, subject to the early payoff fee plus a few hundred dollars. Some lenders do not charge early payoff fees, including U.S. Bank, Citizens Bank, and Chase.

Our Recommendations

If you are worried about being able to qualify for a home equity loan, LendingTree is probably your best bet as it connects you to its large network of over 300 lenders – providing you many options and opportunities to qualify for either a home equity loan or HELOC. Additionally, you may also consider Key Bank and TD Bank as they have less strict requirements compared to other services.

When it comes to the best rates and fees, you may want to consider Third Federal. It has fixed interest rates which are lower than most services, plus it has a competitive variable rate cap, and the fact it does not have fees for closing, early payoff, or application.

Our top 10 home equity loan services are truly some of the best around today, with each company offering attractive, competitive rates and fees. With any other loan, your loan amount, interest rate, and other fees are dependent on the company’s requirements for prequalification. As mentioned earlier, it really is best to look around and find a loan which will give you the best rate possible, fits what you need, and offers a repayment schedule that is realistic to you and your situation.

Why Should You Get a Home Equity Loan

We reviewed many companies that offer home equity loan services, and found 10 of the best. In our top 3 performers are LendingTree, followed by TD Bank, and then Citizens Bank.

One of the main benefits of owning a home is that you know you are not wasting your money on rent. Instead, as you make payments on your loan, your mortgage payments also build equity. This way, if you ever sell your house, you know you will get back part of the money you have put into it.

Additionally, a home equity loan can also be a good option if you suddenly have expenses that are surprisingly bigger than you thought they would be, or you want to tap into that equity for repairs and home improvement.

You may choose from two types of equity loans – lump sum (monthly payments) or home equity line of credit (HELOC). Either loan types are based on your home’s equity, but they work differently from each other, which will be further discussed below.

The PROs and CONs

Home equity loans can be used to finance nearly anything. However, it’s not a typical debt loan, but rather you spending an investment. Think of it this way: when you take out a home equity loan or HELOC, you are subtracting from an investment you have been contributing to for years. As such, you should not spend these funds lightly, irresponsibly, or for thoughtless purposes.

We understand, however, that there will be times when you might need additional funds. Such justifiable expenses would include borrowing against your home equity so that you may increase the value of your home via repairs and improvements. Another example is using home equity loans to pay for your children’s education.

Home equity loans and HELOCs have many pros and cons. On one hand, one of the upsides is that these often have lower interest rates compared to other loan types or credit cards. HELOCs usually have a lower initial interest rate compared to traditional fixed-rate equity loans. It should be noted, though, that because HELOCs have variable rates, the rates may be significantly higher toward the end of paying off your loan compared to when you started.

On the other hand, home equity loans have additional fees such as closing costs, something that you won’t find or have to do when paying with credit cards. It should be noted, however, that most companies can waive closing costs. This happens when you pay off your loan early. Another con is having other additional fees to pay, depending on the lender.

With just about any other loan available to you, understand that there will always be risks involved. The main one would be defaulting on the loan – you may lose your home as these types of loans use your home as collateral. For the HELOC in particular, a second risk could happen when you get a significant credit limit (such as $100,000, for example) and then you borrow the full limit. You will have very large, often unmanageable monthly payments. To avoid these from happening, be sure to make an honest assessment of what you can afford.

Taking Advantage of Your Equity

Traditional Equity Loan

When choosing between a traditional loan or a line of credit, make sure you know and understand what each type is about, as well as its pros and cons. An equity loan gives you a single lump sum all at once, and then you make set monthly payments. Traditional equity loans are fixed rate, so they do not change within the loan duration. You will pay the same cost for principal and interest each month, although taxes may affect the monthly total.

A home equity loan is a good idea if you need a large amount of money instantly rather than over time. You have a set rate and payment over the loan term which never changes or fluctuates. However, you cannot borrow any further funds after, unlike in a line of credit.

Home Equity Line of Credit

If you want to use your equity the same way you do a credit card, you may receive a line of credit from which you can borrow when you need the money, and then you can make monthly payments too. With a HELOC, you have a draw period when you can withdraw money up to your approved credit limit. Once this draw period ends, the repayment term starts – you can then pay back the remaining balance just like a regular loan. HELOCs have variable rates, meaning they change over time.

HELOC may be the better option for you if you need steady funds that are spread over a longer period of time rather than a large sum all at once. Additionally, just like credit cards, you pay little to no interest provided you pay off the principal amount on time. However, a variable rate may seem unattractive to some people. Additionally, many services may require that you draw a minimum amount upon closing.

Mortgage Refinancing

Mortgage refinancing, often called a second mortgage, helps you create a new and lower loan based on the equity you have in your home. This way, you can either lower your interest rate, or use a cash-out option to use the equity you have built. For example, you have a property worth $200,000 with a remaining mortgage balance of $100,000. If you get the balance refinanced to $120,000 mortgage, you are essentially keeping the $20,000 of the equity which you have built.

Compared to a home equity loan, refinancing has lower rates – but its closing costs are higher. Over time, these seemingly big differences may just balance each other out. As mentioned above, many factors can affect your decisions.

Reverse Mortgage

A reverse mortgage is another option wherein you can tap your home’s equity. However, it comes with an age requirement of 62 years old, among other stricter requirements. For instance, most lenders prefer that you actually own the property outright, or have only a small amount left to pay on your mortgage. It is similar to an equity loan in the sense you can receive the loan amount in a single lump sum, or in equal monthly installments given by the creditor. You receive the payments rather than making them each month, thus the name “reverse mortgage.”

As with other loans, there are pros and cons to reverse mortgages. Remember that you will have higher fees compared to the typical rates in other loans, including origination fees, higher interest rates, and insurance premiums. Additionally, should the housing market drop, you will end up owing more than what your home is actually worth. Lastly, as previously mentioned, the requirements are stricter in order for you to qualify.

What You Should Know

Just like all other loans, home equity loans and HELOCs have terms, conditions, and other fine print involved. It’s important to understand how these loans work, including what your rates are, if they are fixed or variable, what the loan’s term is, the basic process, and if you are qualified for the loan or not.

Eligibility

The first step to getting a loan is finding out if you are eligible. You must meet a few minimum requirements, mainly your loan-to-value (LTV) ratio. This is figured by dividing the amount you owe on your mortgage by the property’s appraised value. Most loan companies prefer this to not exceed 80%.

Lenders would also look at the amount of equity you have acquired. When they examine equity, companies consider how much equity you have and then compare it against the loan amount you want. Most companies allow 80-90% of your home’s total equity, although there will be the rare case a company is willing to lend the full 100%. Other companies also require a minimum specific dollar amount.

Companies also consider your credit score, as well as your debt-to-income (DTI) ratio. Most would require good or excellent score, which on average is a minimum FICO score of 660 to 700. Some services may accept lower FICO scores depending on other factors. As for DTI, the average accepted is around 40%. However, each lender or provider has their own requirements, subject to their discretion.

Most lenders have an online application, which allows a soft credit pull that helps figure out if you qualify for a loan. If you do and you accept either a home equity loan or HELOC, you will then need to provide more information and required documentation, including proofs of income, mortgage, employment, and other supporting documents.

Rates & Fees

Home equity loan rates and fees will vary per company, but there will also be some similarities due to either industry standards or tough competition. Interest rates often are subject to change, plus your personal situation and credit worthiness would also directly affect the rates you qualify for.

Other typical loan fees apply most of the time, although some lenders waive certain fees. One of the most common is having closing fees, the amount of which varies depending on the lender. They may also wish to complete its own appraisal of your home, so you may end up paying an appraisal fee too.

Lastly, although quite uncommon, some loan providers would also charge an application fee. Though most do not ask for it, it’s still helpful to ask. There will also be other less obvious fees you may ask about such as maintenance fees and early payoff fees.

Payments & Terms

The term of your loan is set at closing; however, know there are different options when it comes to lengths and different processes, all depending on the loan type. For traditional home equity loans, the most common is 30 years, though many provide a 15-year option.

A HELOC has a draw period as well, which is usually between 5-10 years. After this draw period ends, your repayment term starts. On average, it’s an additional 10-15 years, but it may vary depending on your loan’s conditions.

What are the Results of our Review

In this review of the top 10 home equity loan services, we considered and criticized many factors, mainly eligibility requirements. Lenders that have higher accepted LTV and DTI ratios, as well as higher maximum loan amounts and lower minimums may mean you’re more likely to qualify. However, your actual eligibility and final loan approval would still rely on several factors. Such examples would be Key Bank and Bank of America, which both accept a higher LTV ratio only, while lenders like Citibank accept a higher DTI. When it comes to overall flexibility requirements, we really stand by LendingTree as the best choice. As a broker, they connect you to their large network of lenders which gives you more options to choose from, including many top 25 lenders and other highly reputable companies.

We also found that loan amounts will vary wildly, ranging from as little as $10,000 to as much as $500,000. Among the lenders on our list, Key Bank has the lowest minimum while U.S. Bank has the highest maximum.

In this review, we also considered each lender’s customer service and support. We contacted these companies by phone and email, evaluating their responses and support they gave to questions we presented. We included how easy or difficult our applications were considered. Based on these, we have assessed that Third Federal Savings & Loan provides the best overall customer experience. They and Citibank also provided accurate information, as well as the feeling they were more than willing to answer our questions. In addition, TD Bank and Wells Fargo also have some of the best customer support options, including their quick email replies, as well as having hundreds of branches spread across the country if you prefer in-person support. We think as far as getting the most simplistic process, Wells Fargo, TD Bank, and Third Federal are the best choices when it comes to quick underwriting turnaround time as well as funds available right when you close on your loan.

For closing costs, it’s important to remember these may add up. In our list of top 10 home equity loan services, most lenders are likely to waive these closing fees. However, you may still pay for some fees like the early payoff fee. Among lenders that do charge closing costs, you will end up paying around a few hundred dollars. If a company waives closing costs, it may expect you cover them if you pay off your loan early, subject to the early payoff fee plus a few hundred dollars. Some lenders do not charge early payoff fees, including U.S. Bank, Citizens Bank, and Chase.

Our Recommendations

If you are worried about being able to qualify for a home equity loan, LendingTree is probably your best bet as it connects you to its large network of over 300 lenders – providing you many options and opportunities to qualify for either a home equity loan or HELOC. Additionally, you may also consider Key Bank and TD Bank as they have less strict requirements compared to other services.

When it comes to the best rates and fees, you may want to consider Third Federal. It has fixed interest rates which are lower than most services, plus it has a competitive variable rate cap, and the fact it does not have fees for closing, early payoff, or application.

Our top 10 home equity loan services are truly some of the best around today, with each company offering attractive, competitive rates and fees. With any other loan, your loan amount, interest rate, and other fees are dependent on the company’s requirements for prequalification. As mentioned earlier, it really is best to look around and find a loan which will give you the best rate possible, fits what you need, and offers a repayment schedule that is realistic to you and your situation.