Locating the top lender for a home equity loan or HELOC: a guide to choosing the most suitable institution
Growth in Home Equity Loans and HELOCs Expected through 2025
Home equity loans and home equity lines of credit (HELOCs) are experiencing a surge in originations, with strong growth predicted to continue through 2025. This trend is driven by several key factors, including favorable rate trends and a shift in borrower usage towards debt consolidation.
Requirement and Limitations
To qualify for a home equity loan or HELOC, several requirements must be met. Applicants typically need at least 15 to 20 percent equity in their home, a mid to high 600s credit score (with a preferred minimum of 700), and a debt-to-income ratio (DTI) of no more than 43 percent (although some lenders allow up to 50 percent). Payment history is essential, with a demonstrated credit history and record of timely payments on outstanding debts being necessary. Income is also a requirement, with sufficient verifiable income to make timely loan payments being necessary.
The loan-to-value (LTV) ratio is another requirement, with no more than 85 percent being typical. Amounts for home equity loans and HELOCs can range from $10,000 up to a maximum of $1,000,000, depending on the lender and the borrower's equity.
Documentation and Process
When applying for a home equity loan, various documents are typically required, including a driver's license, state-issued ID or passport, Social Security number, proof of employment, two most recent pay stubs and W-2 statements, employment history and dates, proof of income for the past two years (i.e., tax returns and 1099s if applicable), documentation to prove property ownership, and a declarations page from the homeowners insurance policy.
The application process can vary, with online-only lenders often offering faster approvals and funding times, particularly for emergency expenses. Banks may extend discounted rates or suspend fees for existing customers.
Market Context and Trends
With homeowner equity at near-record levels (close to $35 trillion) and many homeowners locked into low-rate first mortgages, home equity loans and HELOCs are increasingly viewed as desirable borrowing products. In 2024, combined originations of HELOCs and home equity loans increased by about 7.2% year-over-year, and lenders expect this growth to continue, projecting HELOC debt to rise by approximately 10% and home equity loan debt by around 7% in 2025.
While home renovations were the primary reason for tapping home equity in previous years, this share declined to 46% in 2024. Instead, debt consolidation is becoming a more common reason, accounting for 39% of home equity extractions in 2024, up from about one-third in 2023.
HELOC and home equity loan rates, which spiked in 2024, have declined significantly in 2025. HELOC rates recently dropped to around 8.13% (from higher levels), with forecasts seeing further declines to about 7.25% by the end of 2025. Home equity loan rates held steady at about 8.25% but are also expected to fall to about 7.9% later this year. These rate decreases are influenced by lender competition and possible Federal Reserve interest rate cuts in the second half of 2025.
Potential Risks
It's important to note that home equity loans are a form of debt that would have to be settled as soon as you sell your home, cutting into your proceeds. If you don't repay the loan, your lender could foreclose, displacing you (and your housemates) and damaging your credit.
Shopping Around for the Best Deal
The best way to obtain the most competitive home equity loan is to shop around and compare offers, terms, and product options from multiple lenders. Online-only lenders such as Better, Figure, Spring EQ, and Lower offer home equity financing, and they operate exclusively online and don't have branch locations.
In conclusion, home equity product originations are set for continued rise in 2025, supported by favorable rate trends and a shift in borrower usage towards debt consolidation rather than solely home improvements. This momentum reflects increasing homeowner equity and a market adjusting to interest rate dynamics and borrower needs.
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