How Soon After Buying a Home Can You Obtain a Home Equity Loan?

A home equity loan can money at low interest rates for purposes such as a remodeling project or debt consolidation. Although some people can get a home equity loan immediately after buying the home, others may have to wait a few years to build equity.

Time Frame

The main factor that dictates the timing of a home equity loan is whether you have enough equity in the home. Traditional lenders typically prefer that you borrow no more than 80 percent of the value of your home. It may take a few years to pay off enough of your mortgage to get the remaining debt less than 80 percent of your home’s current market value.

Considerations

If you know when you purchase the home that you will want to borrow more against the home, consider working that amount into your first mortgage. You may be able to increase the amount of your mortgage to avoid making two separate payments on your home.

Warning

Some lenders may be willing to offer you a home equity loan such that your total debt against the home would exceed its value. This is a very dangerous practice because if you have to sell the home at this price, the sale would not pay the loans off and you would owe the bank money.

References

• Bankrate: Home Equity Basics: What Lenders Look For
• Bankrate: Home Equity Basics: Risks of High LTV Loans