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Applying for a home equity loan this spring? Here are 8 tips for getting approved.

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If you're thinking about borrowing from your home equity this spring, these strategies can help maximize your chances of approval. Getty Images

If you're a homeowner looking to tap into the equity you've built up in your property, a home equity loan could be a good option this spring. Home equity loans allow you to borrow against the equity — which is the difference between what your home is worth and how much you owe on your mortgage — as a lump sum of cash. The funds can then be used for things like home renovations, debt consolidation, college tuition or any other major expense.

Considering that the average homeowner has about $200,000 in tappable equity right now, it's a great time to consider taking this route, as chances are that you have at least some tappable equity in your home. And, while today's high-rate landscape may be less-than-friendly to borrowers overall, home equity loans are secured by your home, so they typically come with rates that are much lower than what you'd get with a credit card or another type of personal loan. 

But while home equity loans can offer some big benefits to homeowners, getting approved for a home equity loan isn't always a sure thing. Lenders will look at several factors to ensure you're a qualified borrower to reduce the risk of lending to you. So, if you're thinking about applying for a home equity loan in the coming months, there are strategies you can use to increase your chances of approval.

Learn more about the best home equity loan rates available to you now.

8 tips for getting approved a home equity loan this spring

If you're planning to apply for a home equity loan this spring, you can use these strategies to improve your odds of getting approved:

Check your credit score 

Your credit score is one of the main factors that lenders consider when evaluating home equity loan applications. While it's possible to get a home equity loan with bad credit in certain cases, lenders typically want to see a credit score of at least 620 for approval. However, a good credit score (generally above 700) is preferable and will typically qualify you for lower interest rates on your home equity loan. 

So before you apply, be sure to check your credit report and dispute any errors that could be dragging down your score to help maximize your approval chances. And, be sure to pull your credit reports from all three bureaus in the process: Experian, Equifax, and TransUnion, as the information on your reports can vary from one to the next.

Find the home equity loan rates you could qualify for here.

Calculate your equity 

You'll need to have sufficient equity built up in your home to qualify for a home equity loan. While it varies, most lenders require you to have at least 15% to 20% equity in your home — and will typically only allow you to borrow a portion of it — meaning that you'll need to have a significant amount of equity in your home to qualify. An appraisal will determine your home's current market value, which will be compared against your outstanding mortgage balance.

Maintain steady income and employment 

Lenders want to see proof of stable, recurring income so they know you'll be able to make your monthly loan payments on time. So, if possible, you should try to avoid making any major changes to your employment situation right before you apply — unless, of course, it's a move that drastically increases your income, which can improve your borrower profile. 

It can also help to be proactive in compiling your income documentation upfront. W2s, pay stubs, tax returns and other paperwork proving stable, recurring income over the past two years will be required. And, note that self-employed borrowers may need to provide additional paperwork to verify their income. For example, lenders may want to see your profit/loss statements to determine whether you're an eligible borrower.

Limit your debt-to-income ratio 

Your debt-to-income (DTI) ratio is another key approval factor when applying for a home equity loan. Most lenders prefer your DTI to be under 43% — meaning your monthly debt obligations, including the new home equity payment, should add up to less than 43% of your gross monthly income. The lower your ratio, the better your chances of getting approved for a home equity loan.

Explain the loan purpose 

Be prepared to spell out what you plan to use the home equity loan funds for. Many lenders will want to see that the money is being used for a legitimate purpose that can potentially increase your home's value even more. For example, if you're renovating, provide the lender with contractor quotes, architectural plans, permit details and a schedule to showcase your vision and demonstrate a legitimate increase in home value post-renovation. 

Get offers from a variety of lenders

Not all home equity loans are created equal — and that can work to your advantage as a borrower. Each lender comes with not just unique rates and terms, but also unique borrower requirements, so while one lender may require a 650 credit score to qualify, another may approve otherwise well-qualified buyers with scores as low as 620. But you won't know until you shop around. 

And, to further maximize your chances of approval, get quotes from at least three to five lenders — focusing on a mix of traditional banks, credit unions and online lenders. You should also submit all home equity loan applications within a 14 to 45 day window to minimize credit score impacts from multiple inquiries.

Limit new credit applications 

Each time you apply for new credit, it can temporarily ding your credit score due to the hard inquiry lenders make into your report when evaluating you. And, when you apply for lots of new credit in a short time frame, it can signal to lenders that you're in serious financial trouble — which can make them wary of approving your application to borrow. 

So be sure to space out any applications for new credit lines and rate-shop for your home equity loan within a short window to minimize this impact.

Find a compromise

If you're denied by the home equity lenders you apply with, don't get discouraged. In some cases, lenders may be able to approve you if you're taking out a smaller loan amount, so discuss this option with potential lenders. You can also consider adding a co-borrower or co-signer. Delaying borrowing for a credit-building period could lead to approval when you apply in the future.

The bottom line

By heeding the tips above, your chances of getting that home equity loan approved this spring may be improved. But remember that home equity loan qualification also depends heavily on your home's appraised value and the available equity. So, if you don't have sufficient home equity, you may need to explore other borrowing options. With some preparation though, chances are you'll be in a strong position for approval.

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