What to Look for in a Home Equity Lender
Picking a lender for a home equity loan can be an important decision. The lender you select should make you feel comfortable and informed with the home equity loan process.
You should look for a lender who is upfront with you about the entire loan process, especially the requirements needed to get a loan. Look for a lending partner who explains the basic guidelines for getting a home equity loan (or other loan product).
For example, Discover® Home Loans publishes our basic guidelines on this FAQ page, and we’ve provided them here as well:
- Credit score of at least 620
- History of responsible credit use
- Verifiable employment and income
- Sufficient equity in your home
Clarity and visibility are necessary requirements for any financial partner. You should receive documentation on the requirements, rates and costs associated with your loan.
Do You Meet Their Requirements?
Another consideration involves the ability to meet loan requirements. One common requirement lenders use is combined loan-to-value (CTLV). CLTV is your desired loan amount plus any mortgages you have, then divided by your home value. While CLTV limits vary by lender, Discover Home Loans offers equity loans for $35,000-$300,000 with less than 90% CLTV.
Credit scores are also a common requirement. Your credit score has a direct effect on your loan interest rate. If your credit score is higher, your rate may be lower, though other factors, like CLTV, play a role as well.
We recommend you look for a lender who gives you options to check loan amounts on your own. Try our loan amount calculator to help you determine how much you may be able to borrow, then use our monthly payment calculator to determine your potential rate and monthly payment based on a specific loan amount. While these numbers are just estimates and not guaranteed until the application is processed, it usually gives you a good idea.
If you don’t see or understand something, call a lender to learn more.
What About Costs and Fees?
Discover Home Loans offers equity loans that do not charge application, origination, or appraisal fees.
Costs and fees are an important consideration for anyone who is looking for a loan. Some of the fees, costs and other items to consider include:
- Annual percentage rate (APR) of your loan
- Monthly payment amounts
- Origination fees and closing costs
- Tax, insurance, recording and other service fee
- Prepayment penalties
Take the time to understand the fees that are applicable to your loan options, and even create a spreadsheet. That way, you can compare costs across different lenders for loans of the same amount or term. You should also look for prepayment penalties that might be associated with late payments or refinancing.