How do Home Equity Loans work
Where Can You get a Home Equity Loan
What to Look For
Mortgage FAQs for Home Equity
The Bottom Line

Home Ownership Home Equity

How do I get a home Equity loan

They're easily available, however, it's worthwhile to shop around
By Rae Hartley Beck
Updated August 31, 2022
Review by Doretha Clemon
Fact checked by Melody Kazel

The home equity loans are available in more places than you'd believe. This article explains how to find home equity loans and how they function and how you can ensure you're getting a top-quality one.
Key Takeaways

You can take out a home equity loan through the bank, credit union, or specialized lender.
A good home equity loan should have no or minimal fees, a low variable interest, zero penalties for prepayment and clear the terms.
The best way to compare the cost of various loans is to examine their annual percentage rates (APR).
Check to see if the bank you're considering legitimate and licensed to do business in your state.

How Home Equity Loans work

The home equity loan allows you to borrow against the equity that you've amassed inside your property. You receive a single lump-sum payment that you then return over time in equal monthly installments, typically at a fixed interest rate.1
Where You Can Get a Home Equity Loan

Equity home loans are available from a number similar lenders that provide regular mortgages. If you are a member of a credit union, it will most likely offer an equity loan option that comes with competitive rates and charges. Alongside banks, credit unions provide low- or no-cost mortgages and home equity loans. There are also lenders that specialize in home equity loans.

If you have a couple of possible candidates in mind, make certain to request estimates from each lender, so that you can do some comparison shopping. That includes the loans' charges, terms, and fees as well as annual percentage rates (APRs). It is recommended to use the APR when comparing costs to get the most accurate comparison.

Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion or sex, marital status, use of public assistance or national origin, disability, or age There are steps you can follow. One step would be to submit a claim with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD).2



What should you look for in a Equity Loan for your Home? Equity Loan

Make sure the company you're looking at is legitimate. The lender ought to be capable of providing you with the Nationwide Multistate Licensing System (NMLS) number.3 You can use the number to search for it in the NMLS Consumer Access website to determine if it is properly registered to do commercial transactions within your particular state. Also, determine if any complaints have been made against it.4

After you've confirmed that you're dealing with reputable lenders These are the most important aspects to look for in their mortgage loans.

There is no penalty for prepayment: Particularly with more expensive interest rates, it's best to have the option of paying on your equity home loan ahead of schedule without penalty or fees to do this. The ability to pay off your home equity loan sooner than just making the minimum payment can reduce the cost of interest by thousands. It will also free up your equity, which makes you less likely to become financially insolvent if your home's value decreases.
Free or minimal fees: There are many home equity loan alternatives that come with no fees or extremely low ones. This can save you a large amount of money upfront when you apply for the loan, or pay off interest over the life of the loan if you roll the fees to the loan.
A low interest rate: Lower interest rates will save you a significant amount of money over the duration of your loan. As mentioned above, the rate you should concentrate on is the APR, which takes into account both the basic interest rate as well as additional charges which gives you the most accurate picture of what the loan will actually cost you.
Fixed interest rate: Although the majority of home equity loans have a fixed interest rate however, not all do. Be sure to sign up for one with an interest rate that is fixed so you aren't surprised by an increase in the amount of your payment down the road.
Transparency The home equity loans should be clear prior to and at loan signing including the loan amount, APR, interest rate and fees, as well as any penalties for early payment, and the loan duration (length). Every home equity loans should provide clear and concise information under the TRID (TILA-RESPA Integrated Disclosures) rule.5

What are the risks of a Home Equity loan?

Home equity loan uses your home as collateral and gives you a better interest rate that you can get with other debts that are not secured, such as a credit card or a personal loan. This means that you could end up losing your property if you aren't able to make the repayments. Another major risk associated with the home equity loan occurs if you tap too much equity, and the value of your home decreases. In this case, you could become under-indebted on your loans which means that you owe more on your home than it's worth. This could prevent you from selling your home until it is worth more or you've paid down your loans enough, which could require years.6
What are the alternatives to a Home Equity loan?

The best alternative to a home equity loan can be a solid emergency fund or budgeting , and saving in advance for the future costs you might otherwise need the home equity loan to pay for. When saving money in advance isn't possible, a 0% APR credit card or a personal loan are options which don't place your home in danger when you're unable to repay them.
What Are the Requirements to get a Home Equity Loan?

To be approved for a home equity loan you'll need to be a creditworthy person with a strong rating on your credit, low debt-to-income ratio, a verifiable income history showing you'll have sufficient income to pay back the loan and also a ratio of loan-to value of 90% or less.789
The Bottom Line

A home equity loan is an effective way to borrow money at an extremely low interest however, in the process, you are risking your home. If you are looking for the best home equity loan seek out the option that can help you save the most as well as offer the flexibility to repay your loan early if you're capable of doing so.
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