There are many worthwhile reasons to seek a home equity loan. For instance, you can use the funds for home improvements, to consolidate debt, or to pay for emergency expenses. Often, the process is not difficult—involving only an application, a house appraisal, and satisfaction of a few requirements that are explained further in the guide below.

3 Requirements for Home Equity Loan Approval

1. Equity

"Equity" describes the stake of your house that you own (with the rest often being held by a bank that approved your mortgage). Lenders use this amount as collateral against their loan, and typically agree to give you between 80% to 85% of the current equity value.

To determine your equity, you need a house appraisal to determine the property’s value. The appraiser will consider factors like the size, location, and amenities of the property, as well as the selling prices of similar homes in the area. This value will then be compared to how much of your mortgage is left to pay.

2. Good Credit

Before they loan out money, creditors want evidence that you'll pay them back. A good credit score shows them you've been responsible with borrowed money in the past.

A history of late payments, charge-offs, or bankruptcy are red flags that could derail your loan request. If you have questionable credit, you may need someone to co-sign the loan for you.

3. Ability to Handle Payments 

Along with a history of responsible credit use, lenders want to feel sure you can afford to make monthly payments. They measure this by looking at your debt-to-income (DTI) ratio. This is the percentage of your monthly debt payments in relation to your gross monthly income. The lower the ratio is, the better your chances of loan approval, but many lenders will accept DTI ratios of 40% to 50% for a home equity loan.

If you need a house appraisal to qualify for a home equity loan, contact Tri-County Appraisals in Loveland, CO. They serve Larimer County. Their head real estate appraiser has more than 22 years of industry experience. Appraisal service is also useful when you seek a second mortgage, as well as for divorce, estate planning, and refinancing. Visit their website to see if you are in their service area or call (970) 888-3733 to make an appointment.