How to Get a Home Equity Loan or HELOC
A home equity loan gives you a fixed lump sum at a fixed rate; a HELOC (home equity line of credit) is a revolving credit line at a variable rate. Both use your house as collateral, so lenders limit total borrowing to roughly 80–85% of your home's value across all mortgages.
The Steps
Follow these in order
Each card shows the phase, expected time, and any cost. Data checked against official US sources(2025-Latest).
0 of 7 steps
- Before You Go 15 min
Calculate your equity
Equity = home market value − mortgage balance. A $400,000 home with a $250,000 mortgage has $150,000 of equity. Lenders will not let you borrow all of it: most cap combined loan-to-value (first mortgage + new loan) at 80–85%, so this example supports roughly $90,000 of extra borrowing at 85%. Online valuation tools (Zillow, Redfin) give a rough starting number; the lender will order its own appraisal.
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- Before You Go 20 min
Pick the right product for your need
Home equity loan: one fixed lump sum, fixed rate, fixed payment — best for a known one-time cost (roof, debt consolidation). HELOC: a revolving line you draw from during a ~10-year draw period (interest-only payments possible), then repay over ~20 years at a variable rate — best for ongoing or unpredictable projects. Never borrow more than the project actually needs.
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- Before You Go 20 min
Check your credit and debt-to-income
Most lenders want a 620+ credit score (700+ for the best rates) and a debt-to-income ratio below 43% including the new payment. Pull your score free through your bank or a credit app first — if it is low, paying down card balances for 2–3 months can move both numbers meaningfully.
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- Go 1–2 hours
Shop 3–5 lenders, including a credit union
Start with your current mortgage servicer (they may waive fees for existing customers), then price local credit unions — they consistently post the lowest rates and fee-free HELOCs — and one or two online lenders. Compare APR, closing costs (some lenders pay them for you, often with an early-closure clawback), and for HELOCs: rate caps and the margin over prime.
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- Fill / Prepare 2–3 weeks
Apply and complete the appraisal
Submit the application with income documents. The lender orders an appraisal (drive-by or full interior) to set the home value that your loan limit is based on. Underwriting mirrors a mini mortgage: income verification, title search, insurance confirmation.
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- Submit & Pay 3–5 days
Close — then wait out the 3-day rescission
Sign at closing. On a primary residence, federal law gives you 3 business days to cancel the entire transaction for any reason (right of rescission) — funds are disbursed only after it expires. This does not apply to investment properties.
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- Follow Up 15 min
Understand deductibility and the risk you took
Since 2018, home equity interest is deductible only when the money buys, builds, or substantially improves the home — not for consolidating credit cards or buying a car. And remember what secures the loan: miss payments and the lender can foreclose on your house. Treat a HELOC as a second mortgage, not free money.
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FAQ
Frequently Asked Questions
What is the difference between a home equity loan and a HELOC?
A home equity loan is a fixed lump sum repaid at a fixed rate — same payment every month. A HELOC is a credit line you draw from as needed during a ~10-year draw period at a variable rate tied to prime, converting to repayment afterward. Loans suit one-time known costs; HELOCs suit phased or uncertain spending.
How much can I borrow against my home?
Typically up to 80–85% of your home's value minus what you owe on the first mortgage. A $500,000 home with a $300,000 mortgage: 85% of $500,000 is $425,000, minus $300,000 owed = about $125,000 available, subject to credit and income approval.
Can I get a home equity loan with bad credit?
It is harder — most lenders want 620–640 minimum, and weaker credit means a lower borrowing cap and a higher rate. Credit unions are the most flexible mainstream option. Beware lenders advertising "no credit check" equity loans; equity-based scams target homeowners aggressively (FTC filing rule: legitimate lenders never demand payment before funding).
Is the interest tax-deductible?
Only if the loan proceeds buy, build, or substantially improve the home that secures the loan, and you itemize deductions. Using it for debt consolidation, a car, or tuition removes the deduction. Confirm with a tax preparer before counting on it.
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