HELOC vs. Home Equity Loan
Both HELOCs and home equity loans let you turn your home’s value into cash. But they work in completely different ways.
Home equity loan tips
Check out the best loans for bad credit. Find tricks to increase your approval odds and get the cash you need fast.
How to borrow using equity
Calculate your equity
Subtract your mortgage balance from your home’s current market value to find how much equity you can borrow against.
Choose a loan type
Decide between a home equity loan (lump sum) or a HELOC (revolving credit) based on your financial needs and goals.
Compare lenders
Shop around and compare lenders. Look for competitive interest rates, fees, and flexible terms for home equity products.
Apply for the loan
Submit an application with your chosen lender, providing necessary documentation about your finances and property.
Read the latest on home equity loans
Explore loan options
What is a home equity loan?
A home equity loan lets you borrow against the value of your home, using your equity as collateral. You receive a lump sum and repay it in fixed monthly installments over a set term. It’s often used for large expenses like home improvements or debt consolidation.
For homeowners with poor credit, it can be one of the best loan options for bad credit. Lenders focus more on your home’s value than your score. These loans are higher risk for borrowers since missed payments can lead to foreclosure.
Can you get a home equity loan with bad credit?
You can get a home equity loan with bad credit. Lenders primarily consider your home’s equity, your income, and your debt-to-income ratio rather than your score. Some may approve you if you have significant equity and stable income. The loan will likely come with higher interest rates.
How to get equity out of your home without refinancing
You can get equity out of your home without refinancing by taking out a home equity loan or a home equity line of credit (HELOC). These options let you borrow against your home’s value without changing your current mortgage. A home equity loan provides a lump sum, while a HELOC works like a credit card with flexible withdrawals. Both can be useful for large expenses or debt consolidation.
Alternatives to home equity loan for bad credit
If you have bad credit and don’t want to use your home as collateral, there are other options to consider. Personal loans for bad credit are unsecured and can be used for various needs like debt consolidation, medical bills, or emergency expenses. Look into online lenders and federal credit unions. Both tend to offer flexible terms to borrowers with low credit scores.
Frequently Asked Questions
Are home equity loans tax deductible?
Home equity loan interest may be tax deductible if the funds are used to buy, build, or substantially improve your primary residence. Under current IRS rules, using the loan for personal expenses like debt or tuition doesn’t qualify. Always consult a tax professional to confirm your eligibility based on how you use the loan.
How much home equity loan can I get?
Most lenders allow you to borrow up to 80–85% of your home’s appraised value, minus what you owe on your mortgage. The actual loan amount depends on your home’s equity, credit score, income, and debt-to-income ratio. A strong financial profile may qualify you for more favorable terms and higher loan amounts.
Can you refinance a home equity loan?
Yes, you can refinance a home equity loan to get a lower interest rate, extend your repayment term, or switch to a different type of loan. Refinancing may involve fees and a new credit check. It can be a smart move if your financial situation has improved.
What is the lowest credit score for a home equity loan?
Some lenders may approve home equity loans with credit scores as low as 620, though many prefer 660 or higher. If you have substantial home equity and reliable income, you may still qualify with a lower score. Lower credit scores usually mean higher interest rates and stricter terms.
What disqualifies you from getting a home equity loan?
Common disqualifiers include having little or no home equity, a high debt-to-income ratio, poor credit history, or unstable income. Lenders also review your current mortgage status. If you are behind on payments or in foreclosure, you will likely be denied. Property value, liens, and bankruptcy history can also affect eligibility.
How long does it take to get a home equity loan?
It typically takes two to six weeks to get a home equity loan from application to funding. The timeline depends on the lender, property appraisal, documentation, and the underwriting process. Preparing your financial paperwork in advance can help streamline approval and reduce delays.