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Is it hard to get a home equity loan?

Home equity loans aren't difficult to get as long as you meet basic lending requirements.  Getty Images/iStockphoto

There are several reasons why you may want to tap into your home's equity. You might be interested in using it to pay off high interest credit card debt, to cover the cost of home repairs or pay a wide range of other expenses. 

And, one of the more common ways to access a home's equity is with a home equity loan. These loans act as second mortgages, typically offering fixed interest rates and payments for a predetermined payoff period. And since these loans are backed by your home, they usually come with significantly lower interest rates than unsecured lending options. 

But if you want to tap into your home equity with one of these loans, you'll need to qualify for it. That begs the question: How hard is it to get a home equity loan?

Find out how easy it is to tap into your home equity today

Is it hard to get a home equity loan?

Home equity loans are relatively easy to get as long as you meet some basic lending requirements. Those requirements usually include:

  • 80% or lower loan-to-value (LTV) ratio: Your LTV compares your loan amount to the value of your home. For example, if you have a $160,000 loan on a $200,000 home, your LTV is 80%. In most cases, your LTV needs to be 80% or lower to qualify for a home equity loan — though some lenders may offer a loan if your LTV is 85% and you have a strong credit score and overall application.
  • 620 credit score or higher: Most lenders require credit scores to be at or above 620 for applicants to qualify for home equity loans. Though there are some lenders that may offer loans to borrowers with sub-620 credit scores, your chances of approval typically diminish quickly as your score falls below this mark.
  • Lower than 43% debt-to-income (DTI) ratio: According to Rocket Mortgage, borrowers with a DTI ratio above 43% may not be ready to take on a mortgage. As such, you're more likely to be approved for a home equity loan with a DTI ratio that's below 43%. 
  • Proof of income: You'll typically be required to prove you earn enough money to pay the loan back over time. 

If you meet the above requirements, you should have no problem being approved for a home equity loan. If not, here are a few things you can do to qualify for one in the future:       

Find out the rates you could qualify for when borrowing from your home's equity now

Improve your LTV ratio

Your LTV will likely need to be 80% or lower in order for you to qualify for a home equity loan. If your LTV hasn't met the 80% threshold quite yet, keep making on-time payments on your home. Over time, you'll pay enough of your principal balance off to qualify for a home equity loan. Moreover, if you're close to the 80% threshold, making a single lump-sum payment could help you meet this requirement. 

Improve your credit score

Your credit score plays a significant role in your access to a home equity loan. You generally need at least a 620 credit score to qualify. However, the best rates and terms are often reserved for those with higher credit scores. 

If your credit score is keeping you from qualifying for a home equity loan, it can be helpful to take steps to improve it. Consider settling past-due debts and opening a secured credit card to build a positive payment history. Over time, wise credit decisions will help you improve your credit score.  

Improve your DTI ratio

Even if you have plenty of equity in your home and a great credit score to match, your DTI could hold you back from turning your equity into cash. A high DTI tells lenders that you may have a difficult time paying for the debts you already have. Therefore, adding new debt to the mix could result in missed payments. 

If your debt-to-income ratio is holding you back from tapping into your home equity, it's time to start working toward paying off the debts you already have. Consider making more than minimum payments and reaching out to debt relief experts for assistance.  

Improve your income

Finally, you can improve your chances of being approved for a home equity loan by increasing your income. You could do so by working toward a promotion with your current employer, seeking a more advantageous opportunity elsewhere or starting a business of your own in your spare time. 

Find out if you qualify for a home equity loan today.

The bottom line

It's usually relatively easy to get a home equity loan. That's especially true if you have a meaningful amount of equity in your home and a strong credit score and overall application. On the other hand, if you don't quite qualify for the home equity loan you want, it may help to take advantage of the tips above to improve your approval odds in the future. 

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