Home Equity Loans | Pennymac (2024)

FAQs

Can I be denied a home equity loan? ›

While HELOC rejection rates are the lowest in four years, about half of applications are still denied, for example. Successful applicants tend to have high credit scores and low levels of debt, including relatively small outstanding mortgage balances (less than half their home's value).

Home equity loans are relatively easy to get as long as you meet some basic lending requirements. Those requirements usually include: 80% or lower loan-to-value (LTV) ratio: Your LTV compares your loan amount to the value of your home. For example, if you have a $160,000 loan on a $200,000 home, your LTV is 80%.

While a HELOC works like a credit card — giving you a maximum amount you can borrow with a variable interest rate — a home equity loan works more like your mortgage. You get a lump sum of money, and you repay it on a set schedule with a fixed interest rate.

Generally, you'll need a FICO^® Score^☉ of at least 680 to qualify for a home equity loan. If your credit score is below 680, however, all is not lost. You may still be able to get a home equity loan with bad credit, but you should be aware of the downsides first.

Most lenders require you to have at least 15% to 20% equity left in your home after factoring in the new loan amount. If your home's value has not appreciated enough or you haven't paid down a big enough chunk of your mortgage balance, you may not qualify for a loan due to inadequate equity levels.

A steady income source is one of the main ways a lender determines your creditworthiness. While most don't have a stated income level they are looking for, if you are unable to show steady income through employment, investments, or spousal support, it's unlikely a lender will approve your application.

A $50,000 Home Equity Loan at 7.99% would equal an APR of 7.99% with 120 monthly payments of $606.38.

Traditional home equity loans involve borrowing a lump sum against the equity in your home. To determine the loan amount, lenders typically require a professional appraisal to assess the current market value of your property.

Getting a home equity loan can take two weeks to two months. It's possible to apply for a home equity loan online in minutes, with initial approval following in as little as three business days. Underwriting may take a few weeks, and closing may follow within a week or two of final approval.

Calculating the monthly cost for a $50,000 loan at an interest rate of 8.75%, which is the average rate for a 10-year fixed home equity loan as of September 25, 2023, the monthly payment would be $626.63. And because the rate is fixed, this monthly payment would stay the same throughout the life of the loan.

What is the payment on a $25,000 home equity loan? ›

If you took out a 10-year, $100,000 home equity loan at a rate of 8.75%, you could expect to pay just over $1,253 per month for the next decade. Most home equity loans come with fixed rates, so your rate and payment would remain steady for the entire term of your loan.

A home equity loan can be a good way for you to take advantage of the value built up in your property – but not everyone will be able to qualify. While every lender has its own requirements, to qualify for a home equity loan, you'll typically need: Sufficient equity in your home.

Typically, conventional home equity loans require borrowers to have a stable source of income to qualify.

If you are an EMPLOYED WAGE EARNER / COMMISSIONED:

For Loan Requests Greater than $250,000: All items indicated above AND most recent 2 consecutive years Personal Federal tax returns, Signed & Dated, AND Personal Financial Statement (form provided by PNC), Signed & Dated.

Reasons your mortgage application may be denied include a dip in your credit score, increased debt, paperwork errors, a low home appraisal and unverified cash deposits.

Home equity loan income requirements

There's no set formula for how much you have to earn to get approved for a home equity loan. However, your lender will look closely at your finances to make sure you can comfortably afford the payments on your new loan. To do that, it will calculate your debt-to-income ratio.

Because the loan is secured by your home equity, the maximum amount you can borrow is based on your home's appraised value — you can typically borrow up to 85%. Your personal debt load, income and credit score will also help determine your loan amount and interest rate.