What it is:
A Home Equity Loan (HELoan) allows homeowners to borrow a lump sum of money using the equity in their home as collateral. It’s often referred to as a “second mortgage” and is typically repaid in fixed monthly payments over a set term. Homeowners use these funds for major expenses like home improvements, debt consolidation, or educational costs.
General Requirements:
- Sufficient Home Equity: Most lenders require 15%–20% equity remaining after the loan.
- Good Credit Score: Usually 620 or higher, but better rates with 700+.
- Stable Income & Employment: Proof of ability to repay the loan.
- Low Debt-to-Income (DTI) Ratio: Typically under 43%.
- Appraisal: To determine the current market value of the property.
Who Qualifies:
- Homeowners with available equity in their property
- Individuals with reliable income and manageable existing debt
- Borrowers with good credit history
- Those who need funds for large one-time expenses and prefer fixed repayment terms
A HELoan is ideal for borrowers looking for predictable payments and a fixed interest rate, unlike a HELOC which operates more like a credit line.