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How to borrow equity from your home

Get equity from your home without selling it

Your home’s equity becomes one of your assets when you buy a house. In the beginning, your equity is equal to your down payment. Over time, your home equity can increase if the value of your home rises. You can also increase your equity by paying down the balance on your mortgage. Learn more about how to estimate your home equity.

Depending on how much equity you have, you can take cash out and use it to consolidate high-interest debt, pay for home improvements, or pay for college.

How do you borrow from your home equity?

You can borrow against your home’s equity in three ways. One way to access the equity in your home is through a cash out refinance. This option replaces your existing mortgage with a new mortgage, for a higher amount. This new mortgage might have a new rate and terms, as well.

When your new mortgage closes, you’ll receive the difference between the two mortgage amounts in cash. For example, if your existing mortgage balance is $150,000, a cash out refinance could replace your current mortgage with a new mortgage for $170,000, and you’ll receive $20,000 in cash at closing.

A second option is to use a home equity line of credit (HELOC), which functions in many ways like a credit card. You can take out different amounts of money at different times with a HELOC, which can be useful when you don’t know how much cash you might need or when you will need it.

Finally, you can tap into your equity with a home equity loan, which is also called a second mortgage. A home equity loan is similar to a cash out refinance, because you get a lump sum of money at closing. A home equity loan is a separate, second loan on your house, can have a different rate and terms, and requires a separate payment to a second lender.

Regardless of the loan type you choose, you will need to submit an application and financial documents, and your lender will check your credit, just like with your initial mortgage. You’ll likely need a new appraisal for your home to determine its value. Closing costs are usually required for these loans. If you pay these costs from the value of your home’s equity, they might decrease the total amount of cash you are able to borrow.

Remember that refinancing may increase the total amount of interest you pay over the life of the loan.

How much equity can you borrow from your home?

You, typically, can’t borrow the full value of your home equity. For example, if you have $100,000 in home equity, you will probably be able to borrow only a portion of this amount. To estimate how much cash you might be able to borrow, use our cash out refinance calculator.

How soon can you take equity out of your home?

Most cash-out refinance products require that an applicant make payments for a certain period of time on their existing mortgage before applying for a cash-out refinance. This requirement, also known as seasoning, varies depending on loan product. Keep in mind that with loans like cash out refinances, the most important considerations are the value of your home’s equity and how quickly it may have increased.

If you live in a community where home prices have been rising fast, you may be able to borrow from your home’s equity after a short period of time. If home prices are rising slowly in your community, it might take you longer to build enough equity to borrow against.

Freedom Mortgage is not a financial advisor. The ideas outlined above are for informational purposes only, are not intended as investment or financial advice, and should not be construed as such.

Last reviewed and updated February 2024 by Freedom Mortgage.

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