How to Get Approved for a Home Equity Loan

When you need some cash for a home improvement project, debt consolidation or any other expense, you can turn to your home equity as a way to borrow. A home equity loan is a secured loan, meaning that the lender puts a lien on your house as collateral. If you fail to pay the loan, the lender can sell your house to repay the debt. A lender will guide you through the process of getting a home equity loan, but there are a few things you should know going into it to increase your chances of approval.

Estimate how much your home is worth by looking at recent sale prices for other homes in your area. Multiply this by 0.8 to find out how much money you have available to act as collateral on home loans. Subtract the amount of the outstanding balance on your mortgage to find out how much of your equity is available to borrow. If the result is a negative number, you will probably not be able to get a home equity loan.

Pull a copy of your credit report at least three months before applying for the home equity loan. You can get it for free through Look over the report for errors, and if you find any, file a dispute by following the instructions printed on the report. Correcting errors can boost your credit score and make approval more likely.

Pay down your credit card balances, and make regular on-time payments on all of your monthly bills. Also, refrain from applying for any other new loans or credit cards during the months leading up to your home equity loan application. These are some of the best ways to improve your credit score.

Completely pay off any installment loans that are close to being paid off. One of the factors in home equity loan approval is your debt-to-income ratio. If you can remove one of your debts from the ratio, this will free up some of your income to be used for payments on a home equity loan. In general, your monthly debt payments -- including your primary mortgage, new home equity loan and all other debts -- cannot exceed 36 percent of your gross monthly income.

Gather financial paperwork, including recent pay stubs, bank account statements, last year's tax return and W-2s. Your lender will likely need to see all of these forms when processing your application.

Apply for a loan with the home equity lender of your choice. You can go with your mortgage lender or choose a different one. Consider interest rates, closing costs, special promotions and reputation when choosing a lender.

Clean your home, inside and out, before the home appraisal. Also, type up a list of your home's special features to give the appraiser. These can both help you get a higher appraisal, which can increase the amount of money available for you to borrow through a home equity loan.


  • You need to choose between getting a home equity loan and a home equity line of credit. A loan gives you a lump sum of money all at once, usually at a fixed interest rate. A line of credit makes a specific amount of money available to borrow, but you can take it out as slowly or quickly as you like and usually pay a variable interest rate on whatever you are currently borrowing.


  • If you fail to make payments on your home equity loan, the lender can foreclose on your home. Be sure you can afford it before you take out the loan.