The home equity loan process

Young man and young woman in living room completing the steps in the home equity loan application process

Applying for a home equity loan may be confusing, but knowledge is power. We’ll walk you through what to expect when taking out a home equity loan so that you can confidently complete the process.

What is a home equity loan?

Home equity loans are a type of loan that’s secured by the equity in your home. Equity refers to the difference between the current value of your home and how much you owe on any existing mortgages. In other words, equity is the portion of your home’s value that you own outright. If you’re a qualified homeowner, home equity loan lenders will allow you to borrow a percentage of that equity — this financing option allows you to typically receive a low fixed rate loan in a lump sum with fixed repayments terms.

Why consider a home equity loan?

There are several reasons why you might want to consider taking out a home equity loan. Some of the common uses for this type of loan include:

Home improvements, renovations, or repairs
Consolidating high-interest debts
Education expenses
Starting a business
Investing in property
Covering medical expenses

Because home equity loans are secured using your home as collateral, you will often find that they come with lower interest rates, higher loan limits, and longer repayment terms than unsecured borrowing options such as personal loans or credit cards. Generally, a home equity loan may be a good option for covering a large expense whether it’s planned and budgeted for or a total surprise.

Steps in the home equity loan process

Obtaining a home equity loan involves a series of steps you may want to be aware of if you’re considering this type of financing. Here’s an overview of what you can expect:

Determine how much equity you have: First, you may want to find out how much equity you have in your home. You can do this by subtracting the amount you owe on your mortgage and any other liens you owe against your property from the current value of your home. Online tools like a loan amount calculator can help you find this number.
Shop around for a lender: Research and compare product offers from different lenders. Look at interest rates, fees, and terms of each loan that may be available to you. Weight features like no closing costs against the interest rates you may qualify for and your potential monthly payment to determine what might work best for your budget.
Submit an application: Once you’ve found a lender you want to work with, you will need to submit an application. The application will ask for information about your income, debts, and credit history.
Get an appraisal: After you’ve submitted an application, the lender may order an appraisal of your home to determine its current value.
Review and sign loan documents: Once the lender approves your home equity loan application, they will provide you with loan documents to review and sign. Make sure you look these over closely and understand the terms of the loan before signing.
Receive funds: After you sign the loan documents, the lender will provide you with the loan funds. Typically, funds from a home equity loan arrive in a lump sum.
Repay the loan: Finally, you will need to make monthly payments on the loan. The amount of each payment that you make will depend on the principal balance, the interest rate, and repayment term length. To get an idea of what your payments might look like on the amount you’re looking to borrow, use a monthly payment calculator for an estimate.

The home equity loan process with Discover®

The process of getting a home equity loan will vary depending on homeowner and lender details. With Discover Home Loans, the loan process from initial application to funding typically takes between 5-7 weeks. That time breaks down like this:

Getting the basics (around 1-2 weeks). Apply online or over the phone to review your loan options, then upload required documents. We’ll confirm your initial eligibility.
Processing your info (around 4 weeks). We’ll gather third-party information about your home and then send your complete application to underwriting for a final decision.
Closing your loan (around 1-2 weeks). We’ll contact you to schedule your closing and then arrange for your loan funds to be sent to your accounts.

You can help the process go smoothly by sharing requested information in a timely manner via our secure website.

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 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 or ITIN
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 or tax returns
Evidence of existing debts and existing liens on your home

We have created an easy to use application checklist outlining the documents you’ll need to complete your home equity application. In the event you have special circumstances surrounding your income such as receiving income from social security, you’ll need to provide additional information. The checklist outlines those situations.

Tips for going through the home equity loan process

To find the best home equity loan for your specific needs, there are a few steps you can take:

Check your credit score: Lenders typically offer lower interest rates to borrowers with higher credit scores. Before applying for a home equity loan, you may want to review your credit score and ensure it is in good shape. If you think that there is room to improve it, try to take action before applying for a home equity loan. You may want to consider paying off other debts and making sure you have a record of making monthly payments on time as both of these may impact your score.
Research and compare lenders: When shopping around for a lender, take time to understand the various product offerings from different lenders. Look for lenders who specialize in home equity loans and have a good reputation in the industry. Once you apply, you could potentially have ongoing contact with your lender for years to come — not just throughout the application process but while you are repaying the loan as well. Be sure to consider a lender’s commitment to customer service, transparency, and how easy it is to contact them. Though it’s common to search for a home equity loan based on who offers the lowest interest rate, that doesn’t have to be the only deciding factor.
Consider loan terms and repayment options: Evaluate the loan terms offered by different lenders, including interest rates, loan amounts, and repayment periods. Think about your financial goals and choose a loan that aligns with your needs.
Read customer reviews and ratings: Reading customer reviews and ratings may provide valuable insights into the experiences of other borrowers with specific lenders. Pay attention to feedback about customer service, the ease of the application process, and the lender’s responsiveness.
Seek professional advice: If you’re unsure about which home equity loan is best for you, consider consulting with a financial advisor or personal banker. They may provide personalized advice based on your financial situation and goals.

Remember, finding the best home equity loan requires careful consideration of your financial needs and thorough research into different lenders and loan options.

Closing thoughts: The process of obtaining a home equity loan

A home equity loan may be a good option for homeowners who need access to funds for a variety of reasons. By understanding the process and timeline of getting a home equity loan, you can make an informed decision and find the best loan for your needs. Be sure to compare offers, review loan documents carefully, and seek out professional advice to answer any questions you may have. When you’re prepared for the home equity loan process and find the right loan terms for your budget, you’ll be in a better position to experience the benefits of borrowing from your home equity.

If you’re ready to unlock the potential in your home equity with a low fixed rate loan, Discover Home Loans offers home equity loans between $35,000 and $300,000 with a combined-loan-to-value (CLTV) up to 90%. Check out our current rates to see what might work for you.

The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover Bank or its affiliates.