How to get a home equity loan and what to expect

A home equity loan lets you borrow against your home's equity for a big expense or to consolidate high-interest debt. 

A home equity loan is a type of mortgage that uses your home as collateral, which can make the process seem intimidating. But getting a home equity loan is less complicated than most people likely expect. It simply requires meeting a few core lender requirements.

You'll want to start by checking your qualifications, gathering your documents, and comparing lender offers. This guide walks through each phase so you know how it all works before you apply.

What is a home equity loan?

A home equity loan is an installment loan secured by the equity in your home. You receive the funds as a one-time sum at closing and repay them over a set term with fixed monthly payments. 

Your home serves as collateral for the loan. If you don't repay it, the lender could foreclose to recoup its losses. That extra security for the lender tends to give home equity loans lower rates than unsecured loans.

How much you can borrow depends largely on your equity. Home equity is the difference between your home's current market value and what you still owe on your mortgage. If a lender values your home at $400,000 and your mortgage balance is $250,000, you have $150,000 in equity.

If you're still paying your primary purchase mortgage, a home equity loan becomes a second mortgage. In other words, you add a new loan on top of your existing one. Your first mortgage stays in place with its current rate and term. 

Home equity loan vs cash-out refinance

The key distinction between a home equity loan and a cash-out refinance is that a home equity loan is in addition to any primary mortgage. A cash-out refinance replaces your existing mortgage with a new, larger loan and returns the difference to you as cash.

Homeowners who locked in a favorable rate on their purchase mortgage often prefer a home equity loan. It helps them borrow without refinancing their primary mortgage.

Home equity loan vs. HELOC

A home equity loan isn't the same as a home equity line of credit (HELOC). A HELOC also borrows against home equity, but it works differently from a home equity loan. It is a revolving line of credit, which means you can borrow, repay, and borrow again up to your credit limit during the draw period. 

Most HELOCs carry variable interest rates, which means your rate could change during your loan if the market changes. A home equity loan, on the other hand, generally has a fixed rate.  HELOCs through Achieve Loans give you the best of both with a fixed rate from the start.

Requirements to get a home equity loan

Lenders evaluate several factors when you apply for a home equity loan. The main ones are your credit score, the equity in your home, your debt-to-income (DTI) ratio, your employment history, and a property valuation.

Something to note: Advertised interest rates typically reflect a narrowly defined low-risk borrower: a high credit score, lots of equity, and a high income. Most applicants are unlikely to qualify for the lowest advertised rates.

Credit score

Many lenders require a FICO credit score of about 600 to 640 for a home equity loan. Higher credit scores could help you get a lower rate or offset another, weaker factor.

A score below 600 does not always automatically disqualify you from getting a home equity loan. But your options often narrow, so it's even more important to compare offers from multiple lenders before choosing a loan.

Home equity and CLTV

Most lenders require that you keep at least 15% to 20% equity in your home, including the new home equity loan. Lenders measure this through your combined loan-to-value (CLTV) ratio, which is the total of all mortgage balances on your home divided by its market value. 

Most lenders cap CLTV at 80% to 85%, though this varies a lot by lender.

Here's an example of how the CLTV calculation generally works:

Debt-to-income (DTI) ratio

Your debt-to-income or DTI ratio measures your total monthly debt payments divided by your gross (pre-tax) monthly income. Most lenders require a DTI ratio of 43% or less. Some accept up to 50% when borrowers have compensating factors, such as strong credit or lots of equity.

A quick example of how DTI is commonly calculated:

Your projected home equity loan payment counts toward your DTI ratio, so factor that into your calculation before you decide how much to borrow.

Income and employment

Lenders need to verify that you have reliable income to cover payments on your new loan on top of all of your other debts and obligations. Most prefer to see at least two years of reliable income and steady employment.

Traditional W2 income is most common, but other sources of income often count, too. Pensions, Social Security, and rental income all typically qualify. Self-employment earnings and alimony generally also count.

Step-by-step process for getting a home equity loan

Here's how to get a typical home equity loan:

1. Estimate your equity and borrowing power. Check your latest mortgage statement for your current balance. Estimate your home's market value using a recent comparable sale or an online estimator, then subtract your mortgage balance from the estimated value. That gives you a rough equity figure as a starting point.

2. Check your credit and DTI ratio. Pull your free credit reports from AnnualCreditReport.com and review them for errors. You can usually get a free credit score from your credit card issuers or bank. Use the DTI formula above to estimate your ratio.

3. Compare lenders and prequalify. Request prequalification estimates from multiple lenders. Compare interest rates, fees, CLTV limits, and repayment terms. Choose lenders that run a soft credit check at this stage rather than a hard pull to avoid any credit score impact.

4. Submit your full application with documents. Fill out the application and provide the required documentation. The lender reviews your application and orders a property valuation.

5. Complete the property valuation. The lender orders an appraisal or an automated valuation model (AVM) to confirm your home's market value. Appraisal fees typically range from $300 to $500.

6. Underwriting review and approval. The underwriter verifies your credit, income, DTI ratio, and equity position. If you meet the lender's requirements, your loan should be approved at this stage.

7. Close and receive funds. Review and sign your closing documents. Federal law provides a three-day right of rescission for home equity loans on primary residences. After that waiting period, you should receive the funds.

Overall, the full process of getting a home equity loan typically takes two to six weeks from application to closing. 

The actual timeline depends on a lot of factors, including whether the lender uses an in-person or digital valuation. According to the Mortgage Bankers Association's 2025 Home Equity Lending Study, 47% of home equity originations in 2024 used an AVM, 26% used a desk appraisal (an appraiser reviews the home remotely using photos and public records), and only 24% required a full in-person appraisal.

Documents you need to apply

How long it takes to get a home equity loan can be impacted by how quickly you get your documents submitted. Having them readily available could speed up the process. You'll likely need:

• Government-issued photo ID

• Social Security number

• Recent pay stubs (last 30 days)

• W-2s or 1099s (last two years)

• Federal tax returns (last two years)

• Bank statements (last two to three months)

• Current mortgage statement

• Homeowners insurance declaration page

• Property tax records

Self-employed applicants should also prepare business tax returns, a current profit-and-loss statement, and a business balance sheet.

How a home equity loan compares to a HELOC and cash-out refinance

A home equity loan shares some similarities but also has some key differences:

With both a home equity loan and a HELOC, you borrow against the equity in your home without replacing your first mortgage. A typical cash-out refinance replaces your entire mortgage, which means your rate and term change. For homeowners with a favorable existing rate, a home equity loan or HELOC is often the practical way to borrow without refinancing.

Tips to improve your chances of home equity loan approval

You have real move to make that could improve your loan approval or terms:

• Review your credit reports for errors and dispute inaccuracies before applying. 

• Reduce revolving credit utilization if you have high credit card balances.

• Pay down existing debts to lower your DTI ratio before you apply. Even paying off one small balance could change the ratio enough to matter.

• Avoid opening new credit accounts in the months leading up to your application.

• Confirm your homeowners' insurance is current. Lenders require proof of coverage.

• Request estimates from more than one lender. Requirements vary, and one lender might approve you where another would not.

Closing costs and fees to expect

Home equity loan closing costs generally range from 0% to 6% of the loan amount. On a $100,000 loan, that could mean up to $6,000 in fees. Some lenders may not charge any closing costs, or may waive certain costs.

Common closing costs include:

• Appraisal fee: $300 to $500

• Credit report fee: $25 to $75

• Title search: $75 to$250 or more

• Origination fee: Varies by lender

Ask each lender for a detailed fee breakdown when comparing offers.

Tax note: Interest on a home equity loan could be tax-deductible if you use the funds to buy, build, or substantially improve the home that secures the loan, per IRS rules. If you use the funds for other purposes, the interest is generally not deductible under current rules. Consult a tax professional for guidance on your situation.

Talk to a mortgage advisor at Achieve Loans to find out if you qualify for a fixed-rate HELOC.