You can get a home equity loan as soon as you have built at least 15% to 20% equity in your home, have a credit score in the mid-600s or higher, and can show enough income to handle the new payment on top of your existing mortgage. From application to funded loan, the process usually takes about four to six weeks. Because the loan is secured by your house, the requirements are stricter than for unsecured borrowing, and lenders will not bend on the equity math.
How Much Equity You Need First
The first gate is equity. Lenders measure it two ways. Your loan-to-value ratio (LTV) compares your first mortgage balance to the home’s appraised value. Your combined loan-to-value ratio (CLTV) adds the proposed home equity loan on top. Most lenders want the CLTV to stay at or below 80% to 85%, which means you must keep 15% to 20% equity in the home after the new loan is factored in.
Say your home appraises at $400,000 and the lender requires 20% equity to remain. Total debt against the property cannot exceed $320,000. If you still owe $250,000 on your first mortgage, you could borrow up to $70,000. At an 85% CLTV limit, the ceiling rises to $340,000, making $90,000 available. That cushion is what protects the lender if home values slip, and it is largely non-negotiable.
Your equity number depends on the appraisal. Most lenders order a licensed appraiser to inspect the property and compare it to recent nearby sales. Appraisal fees generally run $300 to $700. Some lenders will accept an automated valuation for smaller loans, but a larger loan or an unusual property will trigger a full in-person appraisal.
Credit Score and Income Thresholds
A credit score of 620 is the common floor for approval, though many lenders prefer 680 or higher. The difference is not just approval versus denial. Borrowers with scores above 740 routinely qualify for rates a full percentage point lower, which on a $75,000 loan can save several thousand dollars across the repayment term.
Income matters just as much. Federal regulations require lenders to make a good-faith determination that you can actually afford the new payment before approving the loan.1eCFR. 12 CFR 1026.43 – Minimum Standards for Transactions Secured by a Dwelling Lenders use your debt-to-income ratio (DTI), which compares total monthly debt payments to gross monthly income. Most cap DTI at around 43%, though strong credit or significant cash reserves can push that ceiling higher. A DTI above 50% will disqualify you almost everywhere.
One point of confusion: the federal qualified mortgage rule no longer imposes a hard 43% DTI ceiling. Since 2022 the standard has been based on loan pricing rather than a fixed DTI threshold.2Federal Register. Qualified Mortgage Definition Under the Truth in Lending Act Regulation Z General QM Loan Definition Individual lenders still use DTI as a practical underwriting cutoff, and 43% is the number you will most often see.
Which Properties Qualify
Primary residences are the easiest to borrow against because the borrower has the strongest incentive to keep paying. Second homes and vacation properties can qualify, but with stricter equity requirements and higher rates. Investment and rental properties face the most scrutiny, and rates reflect the vacancy risk.
Single-family homes are the standard. Townhomes and condos are widely accepted, though the lender may review the homeowners association’s finances first. Manufactured homes on permanent foundations qualify with some lenders. Mobile homes on leased land almost never do. If your property is unusual, ask the lender before you pay for an appraisal.
How Long the Process Takes
From submitted application to funded loan, plan on about 30 days, sometimes faster if your documents are clean and the appraisal comes back without surprises. Self-employment income, unusual property types, or slow responses to document requests can stretch the timeline to six weeks or more.
Once you submit the application, the lender orders the appraisal and starts verifying everything you provided. An underwriter reviews credit, income, DTI, and the appraisal against the lender’s guidelines and federal lending standards. Requests for additional documentation during this stage are normal and do not mean your application is in trouble.
Closing is not payday. Federal law gives you a three-business-day right to cancel, known as the right of rescission, on any loan secured by your primary residence.3eCFR. 12 CFR 1026.23 – Right of Rescission You can walk away during that window for any reason with no penalty. Funds are disbursed after the rescission period ends, usually on the fourth business day after closing.
Documents to Have Ready
Applications stall in underwriting when paperwork is missing. Having everything ready before you apply is the single biggest factor you control. Lenders generally ask for:
- Pay stubs covering the most recent 30 days, plus W-2s for the past one to two years. If your pay includes commissions, bonuses, or overtime, expect to provide two full years to establish a pattern.
- One to two years of federal tax returns. Self-employed borrowers should plan on both personal and business returns.
- Your most recent mortgage statement showing the current balance, and your property tax assessment.
- A declarations page from your homeowner’s insurance policy confirming coverage.
- Bank statements and documentation of other debts, which the lender uses to calculate your DTI.
Self-employed borrowers face extra steps. Lenders often require profit-and-loss statements and will ask you to sign IRS Form 4506-C, which authorizes them to pull tax transcripts directly from the IRS to confirm the returns you submitted match what you actually filed.4Fannie Mae. Requirements and Uses of IRS IVES Request for Transcript of Tax Return Form 4506-C Income from a partnership or S corporation means a separate 4506-C for the business returns. This is where applications most often slow down.
Most lenders capture your application through the Uniform Residential Loan Application, known as Form 1003, usually completed through the lender’s online portal.5Fannie Mae. Uniform Residential Loan Application
What You’ll Pay at Closing
Closing costs on a home equity loan typically run 2% to 5% of the loan amount. On a $60,000 loan, that is $1,200 to $3,000 in fees. The main components:
- Appraisal fee of $300 to $700, paid upfront or rolled into closing costs.
- Origination fee, usually 0.5% to 1% of the loan amount, charged by the lender for processing.
- Title search and, in most cases, a lender’s title insurance policy to confirm no other liens exist against the property.
- Recording fee, a government charge that varies by jurisdiction.
- Credit report fee, typically $20 to $50.
Some lenders advertise “no closing cost” loans. That usually means the costs are built into a higher interest rate rather than waived. Ask for a Loan Estimate early, which federal law requires lenders to provide so you can compare the true cost across lenders.6Office of the Law Revision Counsel. 15 USC 1601 – Congressional Findings and Declaration of Purpose With average home equity loan rates running roughly 7.9% to 8.1% as of early 2026, the cost of borrowing is not trivial either way.
The Risk You Are Taking On
A home equity loan is a second mortgage, and your home is the collateral. Missing payments by 30 days or more will significantly damage your credit, and continued default can lead to foreclosure.
Second mortgage holders foreclose less often than first mortgage lenders because of lien priority. If the first mortgage lender forecloses, the sale proceeds pay off that first lien before anything goes to the second. When the home’s value has dropped and the sale doesn’t cover the first mortgage, the second lender gets nothing from the sale, though depending on your state’s laws it may sue you for the remaining balance as unsecured debt. A second lender can initiate foreclosure on its own, but usually only when the home’s value comfortably exceeds what you owe on both loans. More often, the second lender reports the missed payments, damages your credit, and pursues collection through other means first.
None of that changes the underlying point. Borrowing against your home means your home is on the line, so the right time to take on a home equity loan is when you are confident the payment fits comfortably within your budget for the full term of the loan.