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Step 1
Find a lender or financial institution that provides home equity loans. Research the interest rates offered by each lender. Find out what criteria you need to qualify for your home equity loan. Information such as income and length of employment play a significant role in the verification process.
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Step 2
Get all of your information verified. This includes providing W-2's, bank statements and your tax returns from the last three years. Lenders check your credit report for slow payments and delinquency. If your credit score is below 640, expect to pay a higher interest rate on your home equity loan. You may need to improve your credit score by paying off negative items on your credit report.
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Step 3
Evaluate your debt to income ratio. Most lenders require your debt to be no more than 40% of your total income. If your debt exceeds 40%, you may need to pay off some of your existing obligations. Paying down credit card debt is a good way to decrease your debt to income ratio because of the high interest rates involved.
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Step 4
Get an appraisal of your home. This is a key component in determining how much you can borrow. If the value of your home has risen over the years, that increases the amount of equity you have in your home. Conversely, if the value of your home goes down, it decreases your equity. The more equity you have in your home, the better your chances of qualifying for a home equity loan. If you have equity of less than 10% of your home's value, you may have difficulty getting a loan.
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Step 5
Decide the amount of money you want to borrow. You may not want to take a loan equal to the amount of equity you have. For example, you may be eligible for a $50,000 loan, based on your available equity. Instead of $50,000, you may decide to get a home equity loan for $25,000, which allows you to leave the remaining equity in your home.
