How to get preapproved for a home equity loan

Be ready to submit copies of your current mortgage paperwork, proof of income and details about your credit history with your home equity loan preapproval application. You’ll need at least 15% home equity and a minimum credit score of 620 to qualify.

How to get preapproved for home equity loan

Getting preapproved is not the same as getting approved for a home loan. You can expect to submit some documentation, but it should take less time than the actual loan process. In general, you should expect to:

1. Compare lenders based on interest rates, lender fees and underwriting requirements.
2. Fill out some personal information, such as details about your income, employment and debts. You may also need to prove you have at least 15% equity in your home.
3. Your lender reviews your preapproval application.
4. Get your preapproval decision with loan terms and estimated closing costs.

Compare interest rates for home equity loans, HELOCs and cash-out refinancing

Use our tool to get personalized estimated rates from top lenders based on your location and financial details. Select whether you’re looking for a Home Equity Loan, HELOC or Cash-Out Refinance.

If you selected a home equity loan or HELOC, enter your ZIP code, credit score and information about your current home to see your personalized rates.

In the Cash-Out Refinance tab, select Refinance and enter your ZIP code, credit score and other property details to see what you might qualify for.

Who is most likely to be researching the home equity loan pre-approval process?

Finder data suggests that men aged 25-34 are most likely to be researching this topic.

What questions will I need to answer?

Lenders ask questions about your income, credit and ability to pay back loans, and other topics including:

• Home equity. Lenders prefer borrowers to have at least 15% to 20% equity. They might request info from your current loan and an appraisal to determine your equity.
• Credit score. A credit score of 700 is the sweet spot for loan approval. FICO scores of 760 or higher get you the best rates, while between 620 and 700 gets a lower rate. Borrowers with scores below 620 need more equity in their homes and have a low debt-to-income ratio.
• Proof of income. Be ready to prove that you have a steady source of income. Your lender requests two years of tax returns, W-2 statements and pay stubs.
• Employment history. Ideal borrowers have a steady employment history with the same employer for several years. If you hop between jobs, you’ll need to explain.
• Debt-to-income ratio. Most lenders accept a debt-to-income (DTI) ratio of 43%, although some may draw the line at 36%. For DTI ratios up to 50%, you’ll need a stellar credit score, high home equity and proof of cash flow to show that you can afford to take on more debt.
• Loan-to-value ratio. Since most banks require homeowners to have 15% to 20% equity in their homes, your loan-to-value (LTV) ratio should be 80% or less.

The home equity loan preapproval timeline

Filling out a preapproval application can take a few minutes. Once you submit your application, a lender pulls your credit score and verifies your information. You should hear back within three business days.

Your preapproval letter is generally valid for 60 to 90 days. Contact your lender to get a precise timeline about when your preapproval expires.

What happens if I’m rejected?

If your lender rejects your preapproval application, you have the right to ask why. If your credit score is the issue, take some time to pay off your credit card balances.

If your debt-to-income (DTI) ratio is too high, you should try to pay off some debts. Or if your loan-to-value ratio is the problem, you’ll need to wait a bit longer to build some more equity.

Shop around to apply with another lender with more flexible underwriting requirements. Although some lenders may do a hard pull on your credit, you can protect your credit score by applying to multiple lenders within a 45-day time period.

Another option is to do a cash-out refinance. You can borrow more than your existing mortgage to turn some of your equity into cash. It’s important to note that a cash-out refinance replaces your current home loan and may have higher interest rates than what you’re currently paying.

Bottom line

Preapproval is a way to compare loan terms and lender fees. It also gives you a better idea of what to expect when you apply for the home equity loan. Compare lenders to find the best option when you want to tap into your equity.

Frequently asked questions.

How do I refinance a home equity loan?
In many cases, you can refinance a home equity loan with a new home equity loan.

How will a home equity loan affect my credit score?
When you apply for a home loan, the lender does a hard pull on your credit, which lowers your score. Once you’re approved, you have a new loan on your credit report.

Your loans and debts can temporarily drop your credit score. As you make timely repayments and pay off your loan balance, your credit score should recover.

What can home equity loans be used for?
Use your home equity loan to pay for mostly anything. The purpose of the cash won’t impact your application’s approval.

However, if you’re looking to get a tax deduction by claiming interest on your home equity, you’ll only be able to do that for certain purchases such as home improvement or college tuition.

Written by

Kimberly Ellis

Kimberly Ellis is a personal finance writer at Finder, specializing in banking and financial literacy. After teaching in public and private schools, Kimberly zeroed in on personal financial education to help families and kids develop lifelong money skills. She hails from New York City, graduating summa cum laude from Queens College with a BA in elementary education and mathematics, as well as a New York State teaching certificate. She’s also an aspiring polyglot, always in a book and forever on the hunt for the perfect classic red lipstick. See full profile

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