What Documentation Do I Need for a Home Equity Loan?

A home equity loan lets the borrower use the equity of their home as collateral for a loan. These secondary types of loans allow the borrower to finance major expenses by tapping into the market value of their home, minus whatever they still owe on it.

Applying for this kind of loan is similar to applying for a traditional mortgage, with some variations in requirements. These requirements vary by lender and loan type, but the most common are income, cash on hand, credit rating, and debt-to-income ratio.

Learn what financial requirements you must meet to qualify for a home equity loan and what documentation lenders want to see, such as proof of income, credit history, and tax returns.

Key Takeaways

• A home equity loan is a secured loan that uses the borrower’s home as collateral.
• The qualification requirements for a home equity loan depend on the lender and the type of loan.
• Lenders expect to see documentation such as tax returns, pay stubs, bank statements, and credit reports.
• Being approved for a home equity loan can take as little as a few weeks if you have a good credit history, a low debt-to-income ratio, and adequate repayment ability.

Home Equity Loan Requirements

Lenders look at various factors when considering a home equity loan application. Requirements may vary depending on the lender, so compare your options. Some requirements are:

• Home equity: You must have home equity. Equity is the difference between how much you owe on your mortgage and the market value of your house. The amount you can borrow depends on the lender, your credit history, and other factors, and can be as much as 95% of the equity in your home. However, most lenders prefer that you borrow no more than 80% of your home’s equity.
• Loan-to-value ratio: Lenders use your home’s equity to calculate a loan-to-value ratio (LTV) to see whether you qualify for a home equity loan. Banks and credit unions require different ratios, such as an LTV of around 75%-80%.
• Credit score: Credit score requirements typically are set at 700 or above. Lower scores may lead to higher interest rates or high requirements in other areas.
• Income: Lenders will look at your gross income—your income before taxes, debts, and deductions—to calculate DTI. They may also hope to see steady income.
• Debt-to-income ratio (DTI): DTI measures how much you have to pay in debt each month as a percentage of your monthly income. Your debt-to-income ratio should be no more than 43% of your gross monthly income, including the mortgage.
• Payment history: Lenders will want to see a credit history showing your financial trustworthiness, which indicates that you're a low-risk borrower. They’ll also look at the other debt obligations you must pay monthly.

Materials You’ll Need To Apply for a Home Equity Loan

Lenders will want to see proof of your financial history and income, residence, and identity. Typically, you need the following documentation and information when applying for a home equity loan.

Personal Identification

Any government-issued ID will work for personal identification. You can submit your driver's license, state-issued ID, or passport to prove your identity.

Proof of Income

You need to show proof of your gross income. Form of proof may depend on whether you’re employed, self-employed, or receiving retirement or other supplemental income. Ask the lender, but items could include:

• Recent pay stubs
• W-2 forms
• Bank statements
• Tax returns
• Bank or credit union account numbers

Note

For applicants who only have (or have some combination of) self-employed, supplemental, or retirement incomes, lenders may ask for two consecutive years of personal federal income tax returns, two years of rental history, award letters, insurance policy documents, or other documents.

Property Information

Home information you may need includes:

• Estimated property value
• A copy of the property’s deed
• Trust agreement, if any
• Mortgage statement
• Tax assessment
• Current dues, taxes, insurance, and lien information for all real estate
• Original property purchase price and date
• When the home was built
• Information on any liens you want or need to pay off

How To Apply for a Home Equity Loan

Start by comparing different home equity loan types and their advantages and disadvantages. Then work with the lender, who will likely ask you for:

• Requested loan or line of credit amount
• An overview of how you plan to spend the loan or line of credit
• Type of loan you want (home equity line of credit or home equity loan)
• Any other creditor/financial obligations, including names and account balances
• Current mortgage information and payment

You can apply over the phone, with an online application, or in person at a bank. Gather the required documentation, submit your application, and await a response. Remember, better preparation will likely lead to a smoother process.

Note

To accurately determine the current value of your home, a home appraisal may be ordered. This is especially true if you made improvements to your home, or neighborhood home values increased.

Frequently Asked Questions (FAQs)

How long does it take to get a home equity loan?

The time it takes to approve a home equity loan can depend on your situation, but can range from two to 10 weeks. Loan originators may contact you promptly, but potential process slow-downs can occur if they are waiting on an appraisal, title search, or your mortgage payment history. To speed up the process, have all your documentation ready with you when you apply.

How much can I borrow on a home equity loan?

Generally, you can only borrow up to 85% of the equity you have in your home. The amount you can borrow depends on other factors, such as the lender and state, but it can range from $5,000 to up to $1 million.

How do I get a home equity loan if I have bad credit?

If you have a credit score below the mid-600s, you may still qualify for a home equity loan, but terms and rates will vary. To be approved with bad credit, you may need favorable records of other financial factors, such as established payment history, cash savings, or a co-signer.

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

1. Consumer Financial Protection Bureau. "What You Should Know About Home Equity Lines of Credit."
2. Federal Trade Commission. "Home Equity Loans and Home Equity Lines of Credit."
3. Experian. "What Credit Score Do I Need To Get a Home Equity Loan?"
4. CreditUnion.Gov. "Home Equity Loans & Lines of Credit."

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