Home Equity Loan Requirements: LTV Credit and Income Rules by Lender Type
A home equity loan is a fixed-rate second mortgage that gives you a lump sum at closing. Most lenders require a 680+ credit score, 80-85% combined LTV or less, DTI under 43-50%, and documented income. Unlike a HELOC, the rate is fixed and the payment never changes — you know exactly what you owe every month for the life of the loan.
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Credit Requirements
- Minimum: Most lenders require 680+ FICO for home equity loans, with the best rates at 740+ and limited options below 660
- Impact on rate: The spread between a 680 and 740 score can be 1-2% in rate — on a $50,000 loan, that is $500-$1,000/year in additional interest
- Bad credit options: Some credit unions and portfolio lenders offer home equity loans to borrowers with 620-660 FICO at higher rates and lower CLTV limits
- Action: Pull your credit 60 days before applying and address any derogatory items or high utilization that could be corrected quickly
Equity & LTV
- CLTV limit: Combined loan-to-value (first mortgage + home equity loan) typically capped at 80-85%, some lenders allow up to 90% with credit above 720
- Minimum equity: You generally need 15-20% equity after accounting for your first mortgage balance before any home equity loan proceeds
- Appraisal: Most home equity loans require an appraisal or AVM to confirm current home value — the appraised value determines available equity
- Action: Calculate your CLTV: (first mortgage balance + desired HE loan) ÷ estimated home value — must be under the lender’s CLTV cap
Income & DTI
- DTI limit: Most lenders cap DTI at 43-50% including the new home equity loan payment, first mortgage, and all other debts
- Income docs: Full income documentation required — W-2s, pay stubs, or 2 years of tax returns for self-employed borrowers
- Payment calculation: The home equity loan payment is fully amortizing (P&I), unlike a HELOC which may be interest-only during the draw period
- Action: Calculate your current DTI and add the new HE loan payment to see if you stay under 43% before applying
vs HELOC
- Rate: Home equity loans carry fixed rates, typically 7-10% in 2026 — compared to HELOC variable rates of 8-10% tied to prime
- Structure: Lump sum at closing with fixed monthly payments versus revolving credit line with variable payments on HELOCs
- Best for: Borrowers who need a specific amount, want payment predictability, and do not need revolving access to equity
- Action: Choose a home equity loan when you know exactly how much you need and want the certainty of fixed payments
Frequently Asked Questions
What credit score do I need for a home equity loan?
How much can I borrow with a home equity loan?
Is the interest on a home equity loan tax deductible?
The Bottom Line Up Front
Home equity loan requirements mirror mortgage requirements — credit, equity, income, and DTI all matter. The key advantage over a HELOC is the fixed rate. The key advantage over a cash-out refinance is preserving your existing first mortgage rate.
A home equity loan is a second mortgage that sits behind your first. Your first mortgage stays untouched — same rate, same payment, same amortization. The home equity loan adds a second fixed payment for a defined term (typically 5-30 years). This structure makes it ideal for borrowers who have low first mortgage rates below 5% and need a lump sum without disturbing their primary loan.
What Are the Full Qualification Requirements?
Home equity loan underwriting evaluates credit, equity (CLTV), income, DTI, and property — the same factors as a first mortgage but applied to a second lien position.
| Requirement | Typical Range | Best Terms At |
|---|---|---|
| Credit score | 680-700 minimum | 740+ |
| CLTV (combined LTV) | 80-85% max | 70% or below |
| DTI | 43-50% max | 36% or below |
| Income documentation | W-2, paystubs, or 2yr tax returns | Stable W-2 employment |
| Minimum loan amount | $10,000-$25,000 | Varies by lender |
| Maximum loan amount | $250,000-$500,000 | Varies by lender/equity |
| Property type | Primary residence (most), second home (some) | Owner-occupied primary |
| Loan term | 5-30 years fixed | 10-15 years (best rates) |
Lender Reality Check
Home equity loans are harder to find than HELOCs. Many large banks discontinued home equity loan products in favor of HELOCs because HELOCs are more profitable (variable rates generate more interest income over time). If your bank only offers a HELOC, check credit unions and online lenders like Figure, Spring EQ, and Discover — they still offer traditional fixed-rate home equity loans.
How Does a Home Equity Loan Compare to a HELOC?
A home equity loan gives you a lump sum with a fixed rate and fixed payment. A HELOC gives you a revolving credit line with a variable rate. Both are second liens secured by your home.
- Home equity loan rates are fixed for the life of the loan — if you lock at 8%, you pay 8% regardless of what happens to prime rate. HELOC rates move with prime and can increase or decrease
- Home equity loan payments are fully amortizing from day one — you pay principal and interest every month. HELOC payments may be interest-only during the 10-year draw period, which means lower initial payments but no principal reduction
- Home equity loans provide a lump sum — you borrow $50,000 and receive $50,000 at closing. HELOCs provide a credit line — you borrow what you need when you need it, paying interest only on drawn amounts
- Closing costs on home equity loans are similar to HELOCs: $0-$2,000 depending on the lender, with many lenders waiving costs as a promotional incentive
Which Lenders Offer the Best Home Equity Loan Terms?
Credit unions, regional banks, and online lenders tend to offer the most competitive home equity loan products. Large national banks have largely shifted to HELOC-only offerings.
- Credit unions: Often the most competitive rates with lower minimum credit scores (660-680) and member discounts — check your local credit union and any you are eligible to join through employer or association membership
- Online lenders: Companies like Figure and Spring EQ offer fast approval (often 5-7 days) with competitive fixed rates and streamlined applications — good for borrowers who prioritize speed
- Regional banks: Mid-size banks often portfolio home equity loans and can offer flexible terms, higher CLTV limits, and relationship pricing for existing customers
- Large national banks: Most have discontinued fixed-rate home equity loans in favor of HELOCs — check availability but expect limited options
Deal Saver
Some home equity lenders offer a rate-lock feature during the application process, similar to a mortgage rate lock. This protects you from rate increases between application and closing. Not all lenders offer this — if you are concerned about rates moving during the 2-4 week approval process, ask about rate lock availability and cost before applying.
What Are the Risks of a Home Equity Loan?
A home equity loan uses your home as collateral. If you cannot make payments, the lender can foreclose — even on a second lien. This is the fundamental risk.
- Foreclosure risk — a home equity loan is secured debt. Missing payments can result in the second lien holder initiating foreclosure, although first lien holders have priority
- Reduced equity — the loan reduces your available equity, which limits future borrowing capacity and reduces your net proceeds if you sell the home
- Fixed obligation — unlike a HELOC where you can pay down and redraw, a home equity loan is a fixed obligation with mandatory monthly payments for the full term
- Closing costs on short holds — if you sell the home within 2-3 years, the closing costs on the home equity loan may exceed the savings versus alternative funding sources
File Guidance
Before using a home equity loan for debt consolidation, consider whether you will re-accumulate the debt you are paying off. Converting $30,000 in credit card balances into a $30,000 home equity loan reduces your monthly payment and interest rate — but if you run the credit cards back up, you now owe $60,000 instead of $30,000, and $30,000 of it is secured by your home. Only consolidate if you have addressed the spending pattern that created the debt.
The Bottom Line
Home equity loan requirements are straightforward: 680+ credit, 80-85% CLTV max, 43-50% DTI, and documented income. The fixed rate and fixed payment make it the most predictable way to access equity without disturbing your first mortgage.
Compare at least three lenders — credit unions, online lenders, and your bank. Check both home equity loan and HELOC rates to see which product fits your needs. And remember: a home equity loan is a second mortgage secured by your home. Borrow only what you need, and only for purposes that justify the collateral risk.
Frequently Asked Questions
Can I get a home equity loan with bad credit?
Limited options exist below 680. Some credit unions offer home equity loans at 620-660 FICO with higher rates (10-13%), lower CLTV limits (70-75%), and smaller maximum loan amounts. If your credit is below 620, a cash-out refinance through FHA loan program (580 minimum) may be a more accessible path to equity.
How long does it take to get a home equity loan?
Typically 2-6 weeks from application to funding. Online lenders like Figure can close in 5-7 days using automated valuations. Traditional banks and credit unions typically take 3-6 weeks due to manual processing, full appraisals, and title work. Plan for at least 3 weeks if you need the funds by a specific date.
Can I get a home equity loan on a rental property?
Very few lenders offer home equity loans on investment properties. The risk profile is higher because the borrower does not occupy the collateral. If available, expect 720+ credit, 70% CLTV maximum, and rates 1-2% above primary residence home equity loan rates. A cash-out refinance or DSCR loan may be easier alternatives for investment property equity access.
Is there a prepayment penalty on home equity loans?
Most home equity loans have no prepayment penalty — you can pay off the balance early without fees. Some lenders charge an early closure fee ($300-$500) if you pay off the loan within 2-3 years of opening, which recovers waived closing costs. Check the terms before signing.
Can I use a home equity loan for a down payment on another property?
Yes, but the home equity loan payment counts in your DTI calculation for the new mortgage. The combined debt load of your first mortgage, home equity loan, and new mortgage may push your DTI above qualifying limits. Run the DTI math including all three payments before pursuing this strategy.
What happens to my home equity loan if I sell my house?
The home equity loan balance is paid off from the sale proceeds at closing, just like the first mortgage. The title company pays off both liens — first mortgage first, then home equity loan — and you receive the remaining proceeds. If the sale price does not cover both loan balances, you would need to bring cash to closing.