Best Home Equity & HELOC Lenders

Home equity is the value of your home minus any remaining mortgage payments. If your home is valued at $300,000 and you owe $200,000, your equity is $100,000. Increasing your home's value through renovations or if your area's property values rise can boost your equity. Before seeking equity financing like a home equity loan, consider getting an updated appraisal to potentially enhance your loan approval chances and terms, as a higher home value increases your available equity.

When you refinance your mortgage, you pay off your current loan by replacing it with a new one. As a result, you’ll pay the new loan from then on. The purpose of refinancing is to help you save money.

For this, you need to make sure you get a new loan with terms that are convenient for you. Most homeowners who choose to refinance their loans look for lower interest rates. Another reason why you might want to refinance is to shorten the term of your loan. You can also get a new loan that comes with a fixed mortgage rate, which is beneficial because you don’t risk losing money as the rates fluctuate based on market conditions.

All these benefits might seem appealing, but remember that it only makes sense to consider refinancing if you’re 100% sure you will get a loan with better terms. This means you have to calculate the interest rate of your new loan and how much you will pay over the life of your loan. Also, remember that mortgage refinancing can cost 3% - 6% of your principal plus application fees.

A Home Equity Line of Credit (HELOC) is a flexible loan where your home equity serves as collateral. Unlike traditional loans that provide a lump sum, a HELOC offers a credit line you can draw from as needed, much like a credit card. You have a set limit based on your equity, and once you hit that limit, you cannot borrow more until you repay some of the credit used.

The time you can use the HELOC is known as the draw period, typically lasting 5 to 10 years. After this period, you can't access additional funds and must start repaying what you've borrowed.

The amount you can borrow through a home equity loan or line of credit varies by lender and is influenced by the amount of equity you have in your home and your financial standing, including your credit score. Generally, some lenders may allow you to borrow up to 85% of your home's equity, with the possibility of more if you have an exceptional credit score and solid financial history. Your borrowing capacity is determined by assessing your home's value, your existing equity, and your ability to repay the loan.

Yes, the interest paid on a home equity loan can be tax deductible, but there are conditions. According to the IRS, the loan must be used to "buy, build, or substantially improve the taxpayer’s home that secures the loan" for the interest to be deductible. It's wise to consult with a tax professional to understand how these rules apply to your specific situation and to ensure you're eligible for this potential deduction.

The amount of time it takes to close a mortgage represents the time you have to wait from the moment you apply for the loan until you access the funds. Usually, this can take anywhere between 45 and 60 days. Nonetheless, there is no strict timeline. Some borrowers provide the funds earlier, in only 30 days. How soon you get access to the funds depends on a suite of factors, including

• Your loan type
• Your credit profile
• Your loan purpose (home purchase or refinance)

A good idea to speed up this process if you are looking for a new property is to get a mortgage preapproval. This means that you will talk to your lender before pinpointing your desired property. The lender will assess your situation and pre-approve your loan. So, by the time you find the property, you already know that you can count on the loan.

Usually, the more complex a mortgage is, the more time it will take to close it. For example, Federal Housing Administration, also known as FHA loans, usually takes around 60 days to close. These loans require thorough documentation review and more paperwork means more time.

Your credit score affects just about any type of loan you might want to get. This score is related to your credit history. It shows potential lenders how reliable a borrower you are. The higher the credit, the more trustworthy you are for lenders, which means you are more likely to pay your loan. A good credit score increases your chances of getting approved for a mortgage faster.

Credit scores are determined based on each person’s credit report. A higher credit score allows you to get a lower interest rate. This means you will pay less in monthly mortgage rates. Conversely, a poor credit score will raise your interest rates.  

It's recommended not to apply for new credit if you know you want to get a mortgage. New loans can negatively impact your credit score. Also, it’s a good idea to check your credit score before you start looking for a mortgage to see how well you’re doing.

The house down payment is the amount of money you need to save before buying a new home. This is the money you must be able to provide yourself. The rest will be covered by your lender once your mortgage application is accepted. All lenders calculate the down payment as a percentage of the purchase price of the property you plan on buying. The typical down payment is 20% of the house’s price.

However, remember that this is not a firm standard. While most lenders ask for a 20% down payment, there are programs that enable you to pay only around 3%. For example, with a U.S. Federal Housing Administration (FHA) loan, you only have to put down 3.5% of the value of your future home.

Nonetheless, it’s also worth considering the benefits of a higher down payment, such as

• The ability to get approved for a mortgage faster;
• The capacity to pay off the loan sooner;
• Lower monthly mortgage payments.

This type of insurance protects your lender if you become unable to pay back your loan. The cost of this insurance is always covered by the borrower. There are specific cases when this insurance becomes necessary.

If you can make a down payment of at least 20% or more of the house’s purchase price, you’re not required to pay the mortgage insurance. However, if you pay less than the standard 20%, you will also have to purchase mortgage insurance.

The reason is that you put your lender at greater risk as they have to cover a larger amount of the property’s value. There are also certain types of mortgages, such as FHA mortgages, that automatically come with mortgage insurance, regardless of how much you put down as an upfront payment.

This insurance’s price usually varies between 0.5% and 5% of the yearly mortgage amount.

The answer is yes. There are some types of mortgages that are specifically designed for first-time home buyers. Some of the most popular options include:

• FHA loans
• Fannie Mae and Freddie Mac loans
• USDA loans
• VA loans
• State-specific home buyer programs
  

FHA loans are supported by the Federal Housing Administration, and their minimum down payment requirement is only 3.5%. Yet, for applicants with low credit scores (below 580), the minimum requirement is 10%.

USDA loans are mortgage loans provided by the U.S. Department of Agriculture. This program is available for rural and suburban areas, and it provides 100% financing.

VA loans are available for veterans and service members or their families. These loans usually don’t have a down payment requirement.

Fannie Mae and Freddie Mac loans are available for borrowers with lower credit scores (at least 620) and low income. These loans only require a house down payment of 3%.

State-specific programs are, as their name suggests, tailored to each state, so you will have to check the specific requirements that apply to yours. Among their benefits, they can entail low-interest rates and fewer qualification requirements.