How Many Home Equity Loans Can I Have?
If you own a home with a mortgage and a home equity loan, you may wonder if you can take another home equity loan. The short answer is yes, but the number of home equity loans you can take out varies based on how much equity you have to borrow and your ability to afford another loan payment.
Key Takeaways:
- If you already have a home equity loan, you can take out another if you have enough equity to borrow and can afford the payments.
- Not all lenders allow a borrower to have multiple home equity loans, so it may be challenging to find financing.
- Taking out multiple home equity loans might give you the cash you need for current spending plans. But, adding another monthly payment to your budget may make it a challenge to repay your debts later.
Can You Have More Than One Home Equity Loan?
Yes, getting more than one home equity loan is possible if you meet the lender’s requirements. Some lenders won’t let you take out multiple home equity loans on the same property, but others will – as long as you have enough equity and sufficient income to afford the loan. If you meet those requirements, you can expect to pay a higher interest rate than your other loans to compensate the lender for additional risk.
Multiple Home Equity Loans On One Property
If you have a lot of equity in a single property, you might be able to afford more than one home equity loan. Keep in mind that most lenders only let you borrow up to 80% or 90% of your property’s value, minus how much you still owe on it.
Multiple Home Equity Loans On Multiple Properties
If you own more than one property, you may be able to get multiple home equity loans by tapping into the value of each property. For example, if you have three properties, you might qualify for a home equity loan tied to each property, with the specifics of each loan dependent on how much equity you have in each and your ability to repay the loans.
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How Much Can You Borrow With A Home Equity Loan?
The exact amount you can borrow varies. In general, lenders let you borrow 80% to 90% of your home’s value minus what you owe on it.
For example, if your home is worth $400,000 and your mortgage balance is $100,000, you’d have $300,000 in equity. If a lender allowed you to borrow 80% to 90% of your home equity, that could translate into a loan between $240,000 and $270,000.
In another example, let’s say your property is worth $1 million. You have a mortgage balance of $150,000 and a home equity loan balance of $50,000, which gives you $800,000 in home equity. If you met the other requirements of a home equity loan, and a lender allowed you to borrow 80% to 90% of your home equity, you could take out a second home equity loan totaling between $640,000 and $720,000.
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Requirements For Multiple Home Equity Loans Or HELOCs
If you are interested in pursuing multiple home equity loans or HELOCs, you’ll need to meet the following requirements:
- You need to own a home. Both home equity loans and HELOCs are secured loans that use your home as collateral. At the very least, you must be a homeowner to consider borrowing against it.
- You need enough equity in your home. Beyond being a homeowner, you’ll need to have equity to borrow. Remember that most lenders only allow you to borrow up to 80% or 90% of your home’s value minus what you owe on it. If you have limited home equity, a home equity loan might not be an option.
- You need to be a creditworthy borrower. Lenders usually require a minimum credit score. The specific requirement varies, but in general, expect to need a credit score of at least 680.
- You need sufficient income. Lenders require borrowers to have enough income to afford the loan payments. Most lenders evaluate this by calculating your debt-to-income ratio, which shows how much of your income goes to pay debts.
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What To Consider Before You Take Out Multiple Home Equity Loans
A home equity loan is a second mortgage. Before you commit to this financial obligation, it’s a good idea to consider all aspects of this new loan.
Your Financial Goals
First, consider why you are taking out a home equity loan. It may make sense to get another home equity loan if you use the money to pay for something with long-term value, such as renovations that increase the value of your home or education that allows you to increase your income. It makes less sense to borrow equity to pay for living expenses, a vacation or even a vehicle because you’ll be repaying the loan long after their value. It might make sense in that case to look for a more appropriate financial solution.
Interest Rates
Before applying for a home equity loan, consider both market interest rates and the rate on your existing home loans. When taking out a second home equity loan, you should expect the interest rate to be higher than you would on your primary mortgage and first home equity loan.
If interest rates are considerably lower than the interest rate attached to your mortgage, a cash-out refinance may make more sense than another home equity loan. A lower interest rate could save you a lot of money while giving you access to cash.
If interest rates are significantly higher than the rate on your existing home mortgage, it may make sense to hang onto your existing mortgage and take out another home equity loan. Although your new home equity loan will have a higher interest rate, you can tap into cash without making your original mortgage more expensive.
Risk Of Foreclosure
Your home serves as collateral for your mortgage and your home equity loan. Taking out multiple loans on the same asset risks overextending your finances. If you’re unable to afford your loan payments and default, you risk foreclosure and losing your home altogether. If you are concerned about your ability to repay multiple home equity loans, then you might decide to skip the extra debt.
Excessive Debt
The obvious downside of taking out multiple home equity loans is that you’ll add to your debt burden each time you take out a new loan. With each additional monthly payment, you’ll reduce your bandwidth to afford other financial goals. Before taking out another home equity loan, consider the strain it might put on your budget.
Credit Impact
New loans have an impact on your credit score. Multiple home equity loans might increase your credit score if you make timely payments. Your credit score will likely decrease if you miss payments on any of your loans.
Closing Costs
You must pay closing costs when you take out a home equity loan. While the exact amount varies, you can expect closing costs to total between 2% and 5% of your loan amount.
For example, if you take out a home equity loan for $50,000, your closing costs might fall between $1,000 to $3,000.
Pros And Cons of Multiple Home Equity Loans
As with all financial decisions, taking out multiple home equity loans has advantages and disadvantages.
Pros
Advantages of multiple home equity loans include:
- Turning equity into cash. If you have enough equity, a home equity loan lets you turn it into cash you can use to pay for significant expenses.
- Relatively low interest rates. Home equity-based financing comes with significantly lower interest rates than other borrowing options, such as credit cards.
- Predictable payments are possible. Payments on a home equity loan with a fixed interest rate will never change, which means you know exactly how much you need to pay each month and can budget accordingly.
Cons
Disadvantages to multiple home equity loans include:
- Using your home as collateral is risky. You risk losing the home if you don’t keep up with the payments.
- You have to pay closing costs. Like your initial mortgage, home equity loans require you to pay closing costs. Before moving forward, run the numbers to confirm the loan process makes sense for your situation.
- Adding more debt to your balance sheet. Taking on multiple home equity loans adds to your debt obligations, making your financial situation more tenuous.
Alternatives To Multiple Home Equity Loans
Taking out multiple home equity loans isn’t the only way to tap into the funds you need. The following alternatives could be an option for your financial situation.
- Cash-out refinance. A cash-out refinance replaces your existing mortgage with a new one based on your home’s current value. After you repay your existing mortgage, you keep the difference in cash. This option allows you to borrow your equity and repay it with a single monthly payment.
- Unsecured personal loan. An unsecured personal loan doesn’t use your home as collateral, so you won’t lose your home if you don’t keep up with the monthly payment. Without collateral, you can expect higher interest rates attached to a personal loan than an equity-based loan.
- Credit card. If you want to seamlessly swipe your card to borrow funds, a credit card could be a good fit. The catch is that credit cards tend to come with significantly higher interest rates, which means borrowing money via credit card likely will be more expensive.
FAQ
Here are answers to common questions about having multiple home equity loans.
The Bottom Line
Taking out multiple home equity loans could help you handle current spending needs. But as you add to your debt burden, you’ll likely face more financial pressure when you make loan repayments. Before jumping into multiple home equity loans, get clear on your financial goals. Make sure that taking out these loans now makes sense for your current spending needs and future financial plans.
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