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Okay, so it struck me how interconnected everything is when it comes to major financial decisions. Home equity loans are no exception. Think of it like this: your credit score isn't just a number, it's essentially your financial reputation translated into a three-digit summary that tells lenders whether you're likely to repay borrowed money.
According to the Federal Reserve Bank of St. Louis a home equity loan, also known as a second mortgage, allows homeowners to borrow against the equity they've built in their property. , equity is the difference between your home's current appraised value and what you still owe on your mortgage. If your home is worth $400,000 and you owe $250,000, you have $150,000 in equity. Simple math.
But here's the human side of this: unlike your primary mortgage, which the lender can recover first if you default, a home equity loan sits in second position. Let me simplify this for you. If foreclosure happens and your home sells at auction, the first mortgage lender gets paid first. Only after they're made whole does the home equity lender receive whatever's left—if anything remains. This increased risk is precisely why lenders scrutinize credit scores more carefully for these loans.
"There is more risk in being the lender of a home equity loan or HELOC," explains John Aguirre, a mortgage broker at Loantown. "As a result, they have tighter lending requirements."
So now that you understand why credit matters more for these loans, let's talk about the actual numbers you'll need.
The textbook answer is 620... but really, it's more nuanced than that. Current industry data shows significant variation among lenders, and honestly? I've seen the requirements shift even in just the past few months.
Here's what you're looking at for minimum scores by loan type:
Home Equity Loans: Most lenders want 620-680 minimum, though I'd say 680 is becoming more common as the standard threshold.
HELOCs: These tend to be slightly more forgiving at 620-680 minimum. Some lenders I've worked with accept 620, which gives borrowers more flexibility.
Specialized Programs: If you're in a tough spot, some programs go as low as 550-600 for specific situations, though (and this is important) the terms won't be great.
According to Bankrate's 2025 analysis, many lenders now accept credit scores closer to 620 for HELOCs, while home equity loans typically require 680 or higher. The Mortgage Reports confirms that while 620 is increasingly common, aiming for 740 or above unlocks significantly better terms.
Let me break down what different credit score ranges actually mean for your application in 2025. This is where theory meets reality, and trust me, the difference matters.
You'll struggle to find traditional lenders. Wait, let me rephrase that—you'll find lenders, but you're not gonna like what they're offering. According to Freedom Mortgage, they can sometimes accept scores as low as 550 for FHA cash-out refinances, which serve a similar purpose to home equity loans. The terms won't be great. Expect significantly higher interest rates and stricter requirements. We're talking potentially 3-5 percentage points above what someone with good credit pays.
You can qualify with many lenders, but you won't get their best rates. Griffin Funding notes they may approve borrowers with scores as low as 640, though 680 is preferred for investment properties. At AmeriSave, we work with borrowers across the credit spectrum. We help them understand exactly where they stand. What options exist for their specific situation.
This is the sweet spot where you'll qualify with most lenders and receive reasonably competitive rates. You're demonstrating solid creditworthiness without hitting the premium tier yet. I'd say if you're in this range, you're in pretty good shape.
Here's where you access the lowest available interest rates and most favorable terms. According to The Mortgage Reports, scores north of 740 can save substantial money over the loan's life by reducing the interest paid.
What this means for you is tangible dollars. Let's work through a real example—and these numbers might surprise you.
With a score of 740 or higher, you might get a 7.5% rate. That's $463 per month, and you'll pay $33,340 in total interest over the life of the loan.
At a 680 score, you're looking at maybe 8.5% rate. Now you're at $492 per month and $38,560 in total interest.
Drop down to 620, and suddenly you're at 10.0% rate—$537 monthly, $46,660 total interest.
The difference between a 620 and 740+ score? You'd pay $13,320 more in interest over the loan's life. That's not insignificant—that's a new car, a year of college tuition, or a substantial home renovation budget. Actually, scratch that, maybe not a full year of tuition anymore with how expensive colleges have gotten, but you get the point.
Understanding your credit score is just step one, though. Lenders look at your entire financial picture.
When we acquired this process understanding from traditional lending workflows, one thing became crystal clear: credit score is just one piece of a much larger puzzle. Lenders evaluate several interconnected factors to determine your eligibility and terms. And honestly, sometimes a borrower with a lower credit score but strong income and equity can get approved over someone with a higher score but shakier finances in other areas.
Your DTI measures what percentage of your gross monthly income goes toward debt payments. According to the Consumer Financial Protection Bureau (CFPB), this ratio is crucial for lenders assessing your ability to handle additional debt.
Standard DTI requirements for 2025 look something like this: Most lenders want 43% maximum DTI. Some lenders will go up to 50% for strong borrowers in other areas. The ideal range is below 36% for best terms—that's where you'll really see competitive offers.
Here's how to calculate yours: Add all monthly debt payments—mortgage, car loans, credit cards, student loans, the proposed home equity payment—and divide by your gross monthly income. For example, if your debts total $3,200 and you earn $8,000 gross per month, your DTI is 40% ($3,200 ÷ $8,000 = 0.40). Pretty straightforward once you break it down.
You can't borrow against equity you don't have. This seems obvious, but I think it's worth emphasizing because I've seen borrowers surprised by this. Industry standards in 2025 require substantial equity cushions.
Typical equity requirements include minimum equity after loan of 15-20%, combined loan-to-value ratio usually capped at 80% maximum, and some lenders stretching to 85-90% CLTV for exceptional borrowers with credit scores above 760, strong income, and low debt-to-income ratios.
Let's work through a concrete example. If your home appraises at $450,000 and you owe $250,000 on your primary mortgage, you have $200,000 in equity (44% equity position). With an 80% CLTV maximum, the lender would allow total loans up to $360,000 ($450,000 × 0.80). Since you already owe $250,000, you could potentially borrow up to $110,000 through a home equity loan. Pretty straightforward once you see the numbers laid out.
According to The Mortgage Reports, maintaining at least 20% equity buffers you against housing market downturns and lowers lender risk substantially.
While there's no fixed income requirement, lenders need assurance of stable, adequate income. They'll verify through recent pay stubs (typically last 2 months), W-2s or tax returns (usually 2 years), employment verification contacts, and bank statements showing regular deposits.
Self-employed borrowers face additional scrutiny, often needing two years of tax returns and profit-and-loss statements. Griffin Funding notes that borrowers with variable income may need to provide additional financial records to prove income consistency. It's doable. Just requires more documentation than W-2 employees.
Your credit report tells a story beyond the three-digit number. Lenders examine red flags that can derail applications like recent bankruptcies (typically need 2-4 years passed), foreclosures (usually 3-7 years seasoning required), collections or charge-offs, recent late payments on mortgage, and high credit utilization above 30%.
On the flip side, positive factors help: long credit history (10+ years), mix of credit types (mortgage, auto, cards), low credit utilization (below 10% is ideal), no recent hard inquiries, and clean payment history last 12-24 months.
So if your credit isn't where it needs to be, what can you actually do about it?
I completely understand the frustration when your score isn't where you want it to be. Throughout my work in project management, I've seen countless borrowers successfully improve their credit positions with focused effort. Here's what customers never tell you: small, strategic actions compound quickly. Like, faster than you'd think.
"One item that can often boost your score in a short period is paying down credit card balances, ideally under 10% of the credit limit," according to industry expert advice from Loantown
Focus on cards with the highest utilization first. If you have a $5,000 limit with a $4,500 balance (90% utilization), paying it down to $500 (10% utilization) can boost your score by 20-50 points within one statement cycle. I've seen it happen—it's kinda wild how much impact this has.
The Federal Trade Commission reports that one in five consumers has an error on at least one credit report. You're entitled to free reports annually from all three bureaus at AnnualCreditReport.com. Dispute any inaccuracies immediately. Even small errors can drag your score down.
If someone with excellent credit adds you as an authorized user on their oldest, well-managed account, that positive history can appear on your report within weeks. This strategy works particularly well for those with thin credit files. I always mention this because people forget it's an option.
Payment history comprises 35% of your FICO score. Set up automatic payments for at least minimum amounts. Even one late payment can drop your score by 60-110 points, and it takes months to recover. Not worth the risk. Seriously, I set up autopay for everything after I almost missed a payment once because I was traveling—learned that lesson the hard way.
Each hard inquiry can drop your score by 3-5 points. During your credit-building phase, resist the temptation to open new accounts. Quicken Loans advises that new loans lower your average credit age and require hard credit pulls, both of which negatively impact your score. Those store credit card offers at checkout? Just say no for now.
Focus on the debt avalanche method: pay minimums on everything, then throw extra money at the highest-interest debt. Once that's eliminated, roll that payment into the next-highest rate. This approach saves the most interest while systematically improving your DTI ratio.
Sometimes you need to get creative. Not every borrower fits the standard mold, and that's okay.
Consider a Co-Signer: A co-signer with strong credit can help you qualify, though they're equally responsible for repayment. This works best with family members who understand the commitment.
Explore Different Loan Types: If you can't qualify for a traditional home equity loan, consider FHA cash-out refinance (can accept scores as low as 550), personal loans (no collateral required, though rates are higher), or credit unions (often more flexible than banks).
Wait and Build: Sometimes the wisest choice is waiting. Six months of focused credit improvement can save tens of thousands in interest over a 15-year loan term. Patience pays off financially.
The credit score requirements vary slightly depending on whether you choose a home equity loan or a HELOC. Understanding these differences helps you select the right product for your situation. And honestly, a lot of people don't realize there's a distinction here.
Home equity loans—also called second mortgages—typically require credit scores of 680 or higher, though some lenders accept 620. You get slightly stricter requirements than HELOCs, but you benefit from a fixed interest rate that provides payment certainty. You receive the full amount at closing and repay it over a fixed term, typically 10-30 years.
HELOCs are different. Credit scores of 620 are more commonly accepted. You get variable interest rates, though some lenders offer fixed-rate options now. You borrow as needed during the draw period (typically 10 years), pay interest only during draw period if you want, and then the repayment period begins after the draw period ends.
According to Rate.com, HELOCs typically come with variable interest rates tied to the prime rate, meaning payments may fluctuate over time. This flexibility makes HELOCs attractive for ongoing projects or expenses, while home equity loans work better for one-time needs like major renovations or debt consolidation.
At AmeriSave, we help borrowers evaluate both options based on their specific credit profiles and financial goals. Our digital platform lets you explore what you qualify for without impacting your credit score—we use soft pulls during the initial evaluation phase.
What Disqualifies You from Getting a Home Equity Loan?
Let me be straight with you—certain factors will get your application denied almost immediately, regardless of your credit score. Here's what triggers automatic red flags, and I wish more people knew this upfront so they wouldn't waste time applying when they're not ready.
Insufficient Equity: If you don't have at least 15-20% equity remaining after the loan, most lenders will decline your application. Griffin Funding notes that not having enough equity is one of the primary disqualification reasons. You simply can't borrow money you don't have.
Excessive DTI Ratio: DTI above 50% disqualifies you with most lenders. Even at 43-50%, you'll face limited options and higher rates. Rate.com confirms that if your DTI ratio, including the new loan repayment, exceeds 43%, lenders may view you as a risk and decline your application.
Recent Mortgage Delinquencies: Late payments on your current mortgage within the last 12 months severely impact approval odds. Your home secures both loans, so payment history on the first mortgage matters enormously. This makes sense when you think about it—if you can't pay the first loan reliably, why would a lender trust you with a second?
Active Liens or Judgments: Outstanding tax liens, mechanic's liens, or court judgments against your property must typically be resolved before approval. These represent competing claims on your home's value, and lenders don't like that uncertainty.
Recent Bankruptcy or Foreclosure: Chapter 7 bankruptcy usually needs 2-4 years passed. Chapter 13 bankruptcy might let you qualify while in plan on a case-by-case basis. Foreclosure typically needs 3-7 years depending on circumstances. Wait, I should clarify—these timelines can vary by lender, but this is what I've seen most commonly in my experience.
Employment Instability: Gaps in employment or recent job changes raise concerns about income stability. Most lenders want to see at least two years of consistent employment, though exceptions exist for career advancements or same-industry moves.
Throughout my years at AmeriSave, I've seen how the right approach to home equity lending makes all the difference. We've built our process around transparency and helping borrowers understand exactly where they stand—no surprises, no hidden gotchas.
Our digital mortgage platform streamlines the application process. You can check what you qualify for with soft credit pulls that don't hurt your score, track your application status in real-time (no more calling and wondering where things stand), upload documents securely from your phone (because who has time to mail stuff anymore?), and connect with loan specialists who answer questions directly.
We don't just look at your credit score in isolation. Our underwriters consider the complete picture—your equity position, income stability, DTI ratio, and overall creditworthiness. If you're borderline on one requirement but strong in others, we work to find solutions. That's just... that's how it should work, you know?
That must have been so stressful for some borrowers when lenders used rigid, one-size-fits-all criteria. We believe every application deserves individual consideration. Explore home equity loans to see what you might qualify for based on your specific situation.
I understand. This is hard to understand, and I'm getting tired just thinking about all the different factors that are at play. It's been a long week. But here's what I've learned from helping borrowers make these choices: timing is almost as important as your credit score. It could be more, depending on the situation.
Honestly, if your score is less than 680? You might want to wait a few months and work on making it better. The interest you save over the life of the loan will be much more than any trouble you have to wait. I've seen people rush to fill out applications only to regret it later when they find out how much their lower score cost them.
If you need money right away, though, like for medical bills, home repairs that need to be done right away, or debt consolidation to avoid default, you may have to make do with what you have. Just be aware of the costs before you go in.
Here's a challenge for you: before you apply for anything, get your credit reports (you can get them for free at AnnualCreditReport.com), look for mistakes, and see where you really stand. Then you have to choose whether to move forward now or wait 3–6 months to improve your position. There isn't one answer that works for everyone; it depends on your situation and your timeline.
Home equity loans can be very useful financial tools when used correctly. They have lower rates than personal loans or credit cards, and in some cases, they may even help you save money on taxes. They also give you access to a lot of money for important needs. Just be sure to borrow wisely and be able to make the payments without too much trouble.
AmeriSave's loan experts can help you figure out what you can get based on your unique credit profile and financial situation if you're ready to look into your options. We want to help you make smart choices, not force you to take out loans that don't make sense for your situation.
The bottom line? It's important to have a good credit score, but it's not the only thing that matters. Don't take the first offer you get; instead, focus on building a strong overall financial profile and shopping around for the best terms. You can do this.
Most lenders want a credit score of at least 620 to 680 for home equity loans in 2025, but this can change depending on the lender and the type of loan. HELOCs usually accept scores as low as 620, but traditional home equity loans usually want scores of 680 or higher. 740 and above are the only times you can get premium rates. Recent data from Bankrate and The Mortgage Reports shows that the trend is toward slightly lower minimum scores than in previous years, especially for HELOCs. But if your score is below 680, you should expect higher interest rates and possibly stricter terms. Some specialized lenders will accept scores as low as 550 for some programs, like FHA cash-out refinances, but these come with high costs. Your best bet is to talk to more than one lender because each one has different requirements. I've seen situations where one lender turns down someone with a score of 640, but another lender accepts them with good terms. At these borderline score levels, it's very important to shop around.
Yes, you can get a home equity loan with a credit score of 620, but your options will be more limited and your interest rate will be higher than for people with better credit. Griffin Funding and Bankrate say that many lenders now accept 620 as the minimum for home equity products, especially HELOCs. But you'll need to make up for it by being strong in other areas, like having a strong income, a low debt-to-income ratio (below 36%), a lot of home equity (above 20%), and a clean payment history for the last 12 to 24 months. If you have this score, you should expect to pay interest rates that are one to two percentage points higher than those of premium borrowers. This adds up over time. At this score range, it's even more important to shop around with different lenders because their requirements can be very different. Some lenders only work with people who have credit scores between 620 and 680, and they may offer better terms than most banks. It's also a good idea to check with credit unions, as they sometimes have more flexible rules for underwriting.
Your credit score has a big effect on the interest rate on your home equity loan. This could cost or save you tens of thousands of dollars over the life of the loan. According to industry data, your interest rate usually goes down by 0.5 to 1.0 percentage points for every 40 to 60 points increase in your credit score. A 620 credit score at 10% on a $50,000 fifteen-year loan costs $13,320 more in interest over the life of the loan than a 740-plus score at 7.5%. Rate.com and CBS News both say that credit scores directly affect interest rate tiers. The lowest rates are only available to people with scores above 740. In addition to the rate, higher scores may also make you eligible for lower or waived fees, larger loans compared to your equity, and more flexible repayment terms. The effects get worse over time, so improving your credit before applying is one of the best financial moves you can make. If you can wait a few months to raise your score by 30 to 40 points, you'll be glad you did when you save hundreds of dollars a year on interest.
There are some differences in the credit requirements for home equity loans and HELOCs. In general, HELOCs are easier for people with lower scores to get. Quicken Loans and The Mortgage Reports say that HELOCs usually accept credit scores of 620 or higher, while traditional home equity loans usually require scores of 680 or higher. HELOCs are different because they are revolving credit lines with variable rates. This means that lenders can change the prices as your credit profile changes. Home equity loans give you a set amount of money with a set interest rate. Lenders have to lock in their risk assessment at closing. Also, the application process is a little different. HELOCs usually don't require title searches or full in-person appraisals, which makes them faster and sometimes easier to get. Bankrate says that some lenders, like BMO Bank, need scores of 650 or higher for HELOCs and 700 or higher for home equity loans. If your score is between 620 and 679, you probably have more options for HELOCs than for traditional home equity loans. That being said, HELOCs have variable rates, so your payments could go up if rates go up. This means you're giving up some certainty for more access.
When looking at home equity loan applications, lenders look at more than just the credit score. Most lenders want your debt-to-income ratio to be below 43%, but some will let it go up to 50% for borrowers with good credit in other areas. The amount of equity you have in your home is very important. Most lenders want you to have at least 15 to 20 percent equity left after the loan, and the maximum loan-to-value ratio is usually 80 to 85 percent. Most lenders want to see at least two years of steady work history to make sure you can handle the monthly payments. Your payment history on your current mortgage is very important because your home secures both loans. The Consumer Financial Protection Bureau says that lenders look at your whole financial picture, including your savings, assets, and reserves. Lenders also look at your credit report to see if you have any recent bankruptcies, foreclosures, collections, judgments, or liens that could make it harder for you to get approved. These areas can make up for credit scores that are only slightly good or bad. Because their DTI and equity positions were so much stronger, I've seen borrowers with 660 scores get approved over borrowers with 720 scores.
To raise your credit score before applying for a home equity loan, you need to take focused, planned steps that can raise your score a lot in three to six months. Mortgage industry experts say that the best way to raise your score quickly is to pay off your credit card balances to less than 10% of your credit limits. Get your free credit reports from all three bureaus at AnnualCreditReport.com and contest any mistakes. The FTC says that one in five consumers have mistakes on their reports. Pay all your bills on time for at least six months before you apply. Your payment history makes up 35% of your FICO score. Don't open new credit accounts or buy big things on credit, because hard inquiries and new accounts lower your score for a short time. If you have collections or charge-offs, you might want to try pay-for-delete negotiations or at least bring your accounts up to date. If you become an authorized user on someone else's well-managed, older account, it can quickly add good history to your report. If you don't have a lot of credit history, you might want to get a credit-builder loan or a secured credit card to start building it. The time and energy spent on these strategies usually pays off many times over in the form of lower interest rates and better loan terms. No joke, even small changes can have a big effect on your finances.
It can be hard to get a home equity loan if you have bad credit, which is usually defined as having a score below 620. However, it is not impossible, depending on your situation and what bad credit means. Some lenders and programs are willing to work with lower scores. For example, Freedom Mortgage can sometimes accept scores as low as 550 for FHA cash-out refinances, which are similar to home equity loans. But you'll have to pay a lot more in interest, maybe three to five percentage points more than prime rates, and the terms will be stricter and the loan-to-value limits will be lower. Both CBS News and Griffin Funding say that having bad credit makes it very hard to get loans and makes them much more expensive. Other options are to get a co-signer with good credit, wait three to six months while you work on your credit score with focused credit repair, look into a cash-out refinance instead of a second mortgage, or look into personal loans that don't require home collateral but have higher rates. When it comes to borderline credit situations, credit unions are often more flexible than regular banks. If one lender turns you down, it makes sense to shop around because different lenders have very different requirements. Just be honest about the costs—borrowing with bad credit is expensive.
Your credit score will go down when you apply for a home equity loan, but if you shop wisely, the change is usually small and short-lived. Many lenders, including AmeriSave, offer initial rate shopping with soft credit pulls. This does not affect your score at all. You can look into your options without having to commit to anything with these soft inquiries. FICO says that your score may drop by three to five points for each hard credit inquiry when you formally apply for a loan. But credit scoring models do take into account rate shopping behavior. For example, if you make multiple hard inquiries for the same type of loan within 14 to 45 days, they usually count as one inquiry for scoring purposes. Rate.com says that applying for a HELOC means a hard inquiry, which could lower your score for a short time. The effects fade over time, and after two years, inquiries are no longer on your report at all. If you keep making your payments on time and the new account is approved, it will eventually help your credit by adding variety to your credit mix and building a good payment history. The short-term drop from the inquiry is nothing compared to the long-term damage that comes from making late payments or defaulting on existing debt. So yes, there is a small cost, but it's worth it if you need the money.
Typically, it takes two to six weeks to close on a home equity loan. This depends on how quickly the lender works, how complete the paperwork is, and how much the property needs to be appraised. The process has several steps that must be done in a certain amount of time, according to industry standards. Digital lenders can process your application and do an initial review in one to three days, but traditional banks may take a week. Scheduling and completing a property appraisal can take seven to fourteen days, but some lenders use automated valuation models that give results right away. Once they have all the paperwork, underwriting review usually takes three to seven days. A title search and insurance, if needed, can take an extra five to ten days. Our digital mortgage platform at AmeriSave speeds up a lot of these steps, cutting overall closing times by 30 to 50 percent compared to traditional methods. You can see how your application is doing in real time and upload documents right away, so there are no delays in the mail. Getting ready for the application process can cut a week off the timeline. For example, having your tax returns, pay stubs, bank statements, and other paperwork ready ahead of time can help. If you need money quickly, some lenders will let you close your loan faster for an extra fee. Be safe and plan on 4 to 6 weeks, but we've closed loans in as little as two weeks when everything goes perfectly.
There are a few things that affect how much you can borrow with a home equity loan, but most lenders set the maximum loan-to-value ratio at 80–85 percent of the current appraised value of your home. The Mortgage Reports and Bankrate say that this means the total of your current mortgage balance and the new home equity loan can't be more than 80–85% of the value of your property. Some lenders will go up to 90 percent CLTV for borrowers with credit scores over 760, strong income, and low debt-to-income ratios. VA cash-out refinances let VA loan borrowers get up to 100% of their equity. If your home is worth $500,000 and has an 80 percent CLTV limit, the maximum amount of loans you can get is $400,000. You could borrow up to $125,000 through a home equity loan if you owe $275,000 on your primary mortgage. But the amount you actually get approved for also depends on your income, debt-to-income ratio, credit score, and the lender's own risk assessment. Your monthly payments on the combined loans must be within acceptable DTI limits. This means that you may not be able to borrow as much as the maximum CLTV limit. The calculation tells you how high you can go, but your own finances decide where you actually end up below that ceiling.
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