Follow these 3 steps to check your qualifications and make sure you’re ready to apply.
Step 1: Check your credit
A good credit score usually makes it easier to qualify for home equity financing. Find out how you can check your credit. Your credit score is based on the following five factors:
- Payment history
- Current debt
- Length of your credit history
- Types of credit you use
- New credit
Learn more about how to calculate your credit score.
Step 2: Check your available equity
Add the amount you want to borrow to the amount you already owe on your home, and make sure the total isn’t more than 85% of your home’s value.
For example, if your home is worth $200,000 and your mortgage balance is $120,000, that means you have $80,000 in total equity. You may be able to borrow up to $40,000 of that equity before reaching 80% of your home’s value.
Step 3: Check your debt
Calculate how much you pay each month on your current debts—such as mortgage, credit card, and student loan payments—and make sure the total isn’t more than 43% of your monthly pre-tax income. If you need help, here are some tips on reducing your debt.