No single bank is "best" for everyone—it depends on your credit score, how much equity you have, and what rate you can actually get
Home equity loans work the same way regardless of where you get them: you borrow against the value of your home that you own outright, and you repay it in fixed monthly payments over a set term. The difference between banks is in the interest rate they offer you, the fees they charge, how fast they close, and whether they'll lend to you at all.
Your actual rate depends on your credit score, debt-to-income ratio, and how much equity you're borrowing against. A bank advertising a 7% rate might offer you 8.5% based on your profile, while another might offer 7.8%. The only way to know what you'll actually pay is to get a rate quote from multiple lenders—and those quotes are free and don't hurt your credit score if you do them within 14 days of each other.
Start by checking your credit score before you shop. If it's below 620, most banks won't lend to you at all. If it's 620 to 679, expect higher rates. At 680 and above, you'll see the advertised rates become realistic.
Key Takeaways
- Your actual rate depends on your credit score and debt-to-income ratio, not just the bank's advertised rate—get quotes from at least three lenders to compare what you'll really pay.
- Banks typically charge origination fees (0.5% to 1% of the loan amount), appraisal fees ($300 to $700), and title search fees ($100 to $300), so compare total costs, not just the interest rate.
- Credit unions often charge lower fees and offer rates to members with lower credit scores, but you must be a member to borrow.
- Closing usually takes 7 to 14 days at online lenders and 14 to 21 days at traditional banks, so timeline matters if you need the money quickly.
- A second mortgage (home equity loan) is riskier than a personal loan because the lender can foreclose if you stop paying—only borrow what you can afford to repay.
Where to get rate quotes and what to compare
Start with your current bank or credit union, because they already have your financial history and may offer member discounts. Then get quotes from at least two other lenders—one traditional bank (Wells Fargo, Chase, Bank of America) and one online lender (LendingClub, Upgrade, Figure). This takes 15 to 30 minutes per lender and costs nothing.
When you get a quote, you'll receive a Loan Estimate form that shows the interest rate, the monthly payment, all fees (origination, appraisal, title search, underwriting), and the total amount you'll pay over the life of the loan. Compare the total cost, not just the rate. A 7.5% loan with $2,000 in fees is not the same as a 7.8% loan with $500 in fees.
Ask each lender whether the rate is locked (may provide) or floating (can change before closing). Most lenders lock the rate for 30 to 45 days at no cost, but some charge a fee to lock longer. If rates are rising, locking early protects you. If rates are falling, a floating rate lets you benefit.
Banks versus credit unions versus online lenders
Traditional banks (Chase, Wells Fargo, Bank of America, US Bank) have physical branches, which can be helpful if you need to sign documents in person or have questions during closing. They typically charge 0.5% to 1% origination fees and require a credit score of 620 or higher. Closing takes 14 to 21 days. Their rates are competitive but not always the lowest.
Credit unions (Navy Federal, Connexus, Pentagon Federal, local credit unions) often charge lower fees and offer rates to members with credit scores as low as 600. You must be a member to borrow, which sometimes requires opening a savings account or meeting other membership criteria. Closing is usually faster—7 to 14 days. If you're a member, start here.
Online lenders (LendingClub, Upgrade, Figure, Better.com) have no branches but close faster—often 7 to 10 days. They charge lower origination fees (0.5% to 0.75%) and accept credit scores as low as 600. Everything happens online, which is faster but means you can't walk into an office if something goes wrong. Their rates are competitive with banks.
Fees that add to the real cost
The interest rate is not the only cost. Home equity loans come with fees that can add $1,500 to $3,000 to what you borrow:
- Origination fee: 0.5% to 1% of the loan amount. A $50,000 loan costs $250 to $500. Some lenders waive this for existing customers.
- Appraisal fee: $300 to $700. The lender orders an appraisal to confirm your home's value. You usually pay this upfront and don't get it back if you don't close.
- Title search and insurance: $100 to $300. The lender confirms you own the home free and clear of liens.
- Underwriting fee: $300 to $500. Some lenders charge this; others roll it into the origination fee.
- Closing fee: $200 to $500. Paid to the title company or attorney who handles closing.
Ask each lender for a full fee breakdown before you commit. Some lenders let you roll fees into the loan amount (so you don't pay them upfront), but that increases the total you repay with interest.
How credit score affects your rate
Your credit score determines whether you get approved and what rate you pay. Here's what to expect:
| Credit Score | Approval Likelihood | Rate Range (approximate) |
| Below 620 | Most banks decline | Not available |
| 620–679 | Possible; credit unions more likely | 8.5%–10.5% |
| 680–739 | Likely at most lenders | 7.5%–9% |
| 740+ | Likely at all lenders | 6.5%–8% |
These are rough ranges; your actual rate depends on your debt-to-income ratio, the amount you're borrowing, and the lender's pricing. The only way to know your real rate is to get a quote.
Debt-to-income ratio and how much you can borrow
Lenders look at your debt-to-income ratio (DTI)—the percentage of your monthly gross income that goes to debt payments. Most lenders want your DTI below 43%, though some go up to 50%.
If you earn $5,000 a month and already pay $1,500 in car loans, credit cards, and student loans, your current DTI is 30%. A home equity loan payment of $500 would bring it to 40%, which is acceptable. A payment of $1,000 would bring it to 50%, which most lenders decline.
Use this to estimate how much you can borrow. If your lender allows a 43% DTI and you're currently at 25%, you have 18 percentage points of room—about $900 in new monthly debt payments on a $5,000 income. A $50,000 loan at 8% over 10 years costs about $606 a month, so you'd likely be approved.
Timeline and closing process
From process to funding usually takes 7 to 21 days, depending on the lender and how fast you provide documents. Online lenders are fastest (7 to 10 days). Traditional banks are slowest (14 to 21 days). Credit unions fall in the middle (10 to 14 days).
Here's what happens: you explore online or in person, the lender orders an appraisal (3 to 5 days), you provide pay stubs and tax returns, the lender underwrites the loan (2 to 5 days), you sign closing documents (1 day), and the lender funds the loan (1 to 3 days). If the appraisal comes back lower than expected, the lender may reduce the loan amount or ask you to put more equity down.
If you need the money urgently, tell the lender upfront and ask which steps they can expedite. Some lenders can close in 5 to 7 days if you're ready with documents when ready.
Red flags and what to avoid
Be cautious of lenders who may provide approval, advertise rates that seem too good to be true, or pressure you to close quickly. Legitimate lenders always require an appraisal and credit check, and they give you time to review documents before signing.
Avoid lenders who charge prepayment penalties—fees if you pay off the loan early. Most home equity loans have no penalty, so if a lender charges one, move on.
Do not borrow more than you can afford to repay. A home equity loan is secured by your home, meaning the lender can foreclose if you miss payments. Unlike a personal loan, where the worst outcome is a damaged credit score, a home equity loan puts your house at risk.
Frequently Asked Questions
Is a home equity loan better than a personal loan?
Home equity loans have lower rates (usually 1% to 3% lower) because they're secured by your home. Personal loans have higher rates but don't put your house at risk. If you have good equity and can afford the payment, a home equity loan is cheaper. If you can't afford to risk your home, a personal loan is safer.
Can I get a home equity loan if I'm self-employed?
Yes, but lenders require two years of tax returns and may ask for profit-and-loss statements. Self-employed borrowers are approved more often by credit unions and online lenders than by traditional banks. Expect the underwriting to take longer—usually 14 to 21 days instead of 7 to 10.
What if my home is worth less than I owe on my mortgage?
You have no equity to borrow against, so you won't be approved for a home equity loan. You'd need to wait until your home value rises or you pay down your mortgage. A personal loan is your alternative.
Do I have to use the money for home repairs?
No. Home equity loans have no restrictions on how you use the money. You can use it for debt consolidation, medical bills, education, or anything else. The lender doesn't care—they're lending against your home's value, not the purpose of the loan.
What happens if I miss a payment?
After 30 days, the lender reports it to credit bureaus and your credit score drops. After 90 days, the lender may begin foreclosure proceedings. Unlike a personal loan, where the worst outcome is a damaged credit score and wage garnishment, a home equity loan can result in losing your home. If you're struggling to pay, contact the lender when ready—many offer forbearance or payment plans.