Steps in the Home Equity Loan Application Process
Applying for a home equity loan may be confusing, but knowledge is power. We’ll talk you through what to expect when applying for a home equity loan so that you can confidently complete the application process.
What to consider before applying
1. Take a financial inventory.
The first thing to consider before applying for a home equity loan is your current financial situation. All lenders review an applicant’s financial health and creditworthiness before approving a home equity loan. To qualify for a Discover Home Loan, most applicants must be able to demonstrate:
- A credit score of 620 or better, and a responsible credit history
- Valid employment and income sources
- Adequate home equity (you home equity is the difference between your home value and your mortgage balance(s).
To ensure you will qualify for a home equity loan, take a personal financial inventory to make sure that you meet the criteria above and can pay back any money you choose to borrow.
Remember, your home is the security for your home equity loan, which means failure to pay your loan could put your house in jeopardy. Be a smart borrower and evaluate your financial position first. For resources to help you conduct a personal financial inventory, check out these articles:
2. Figure out how much home equity you have.
Your equity is the amount of your current mortgage subtracted from the appraised value of your home. To get an estimated value of your home, you can visit websites like Zillow or Eppraisal. Discover Home Loans uses an Automated Valuation Model to determine your home’s value.
3. Determine how much you want to borrow.
Knowing how much you want to borrow will not only point you towards the type of home equity loan that is best for your needs, but it will indicate how much home equity you need to achieve your goal.
Discover Home Loans offers loans from $35,000-$150,000. Use our loan amount calculator to learn how much you may be able to borrow (based on our lending criteria).
Two important factors in determining your borrowing ability are your credit score and combined loan-to-value (CLTV). CLTV is calculated by taking your current mortgage balance(s) plus your new home equity loan amount, and dividing that number by your home’s value. Discover Home Loans can generally accept CLTVs that are less than 90%, contingent on your credit score.
4. Consider your ability to repay your home equity loan on a monthly basis.
Since you have already taken a personal financial inventory, you should have an idea of how much you can afford to borrow. That said, it is also wise to evaluate how much you can comfortably afford to repay on a monthly basis.
Discover Home Loans offers 10, 15, 20 and 30 year repayment terms. You can estimate how much your monthly payment will be across these four terms using this monthly payment calculator.
Two important factors in determining your borrowing ability is your credit score and combined loan-to-value (CLTV).
Information you’ll need to apply for a home equity loan
To make completing the home equity loan application process as easy as possible, you should gather all of your financial information and required documentation in advance.
The following is a brief list of information you may need to obtain to complete your home equity loan application quickly:
- Social Security number
- Unreported debts or support obligations, like alimony and child support
- Two years of prior employment history and your employer’s contact information
- Evidence of your income for the past two years
- Proof of homeownership and home insurance declarations page
- Copy of your most recent pay stub
- Current mortgage statement
- Past two years of W-2 statements (Discover can also obtain this on your behalf)
- An appraisal or valuation of your home
- Evidence of existing debts and existing liens on your home
You will also need to provide several signed forms required by your lender.
We have created an easy to use printable application checklist outlining all of the documents you’ll need to complete your home equity application. In the event you have special circumstances surrounding your income, like self-employment or you’re receiving social security income, you’ll need to provide additional information. The checklist outlines those situations.