How to Pull Equity Out of Your Home

In simple terms, your home equity is the portion of your home’s value you own outright—or its value, minus any mortgage balance you have. As your home’s value increases and you pay down your mortgage, your equity grows.

And here’s the best part: You can turn that equity into cash. Once you’ve built up sufficient equity, you can access it through various financial products, such as a home equity loan, a home equity line of credit (HELOC), a cash-out refinance, or even a reverse mortgage (if you’re 62 or older). Keep reading to find out how to put your home equity to work.

How to get equity out of your home

You have many to take equity out of your home. The most common are home equity loans, home equity lines of credit (HELOCs), cash-out refinances, and home equity sharing agreements.

Here’s an overview of how these options compare:

Method	Best for
Home equity loan	Lump-sum cash with fixed monthly payments
HELOC	Credit card-style line of credit you borrow from as needed
Cash-out refinance	New, larger mortgage, but you get the difference in cash
Home equity sharing agreement	Access equity with no additional debt or monthly payments
Reverse mortgage	Homeowners age 62 and older who want to turn their equity into a stream of income

Home equity loan

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Home equity loan vs. HELOC requirements

How it works

A home equity loan is a type of second mortgage that allows you to use your home equity without refinancing. You get a lump-sum payment after closing, and then, as with your initial mortgage, pay it off monthly over an extended period. That means two monthly payments—your home equity payment and your current mortgage payment. 

With a home equity loan, you are not restricted in how you use your funds, but you will pay closing costs (typically around 2% to 5% of the loan amount). Most lenders will let you borrow up to a combined 80% of your home’s value between your mortgage and your new home equity loan. 

Example of a home equity loan

If your home now appraises at $400,000, and you have $200,000 left on your current mortgage loan, you may be able to take out up to $120,000 with a home equity loan:

$400,000 (current home value) x 0.80 (combined borrowing limit) – $200,000 (current mortgage) = $120,000

Terms and eligibility

Home equity loan
Minimum credit score	620*
Income requirement?	Yes*
Monthly payments?	Yes
Interest?	Yes
Borrowing limit (initial mortgage plus new loan)	Up to 80% of your home’s value
Closing costs	2% – 5% of the loan amount
Term	5 – 30 years

Pros and cons

Pros

• No restrictions on how you spend borrowed funds

• Fixed interest rates and monthly payments

• Interest may be deductible

  Up to $10,000, per the Tax Cuts and Jobs Acts, and as long as you itemize your returns and use the funds to improve your home

Cons

• Requires a second monthly payment

• Requires closing costs

• Uses your home as collateral

To compare options, check out the best home equity loans.

Home equity line of credit (HELOC) 

How it works

HELOCs are another product that lets you pull equity from your home, except you don’t get a lump-sum payment. With HELOCs, you have access to a credit line, which you can withdraw from as needed (much like a credit card). These typically come with variable interest rates, which means your rate can increase or decrease over time. 

As with home equity loans, HELOCs mean a second monthly payment, though you may only make interest payments during the initial draw period. Once you enter the repayment period (often after 10 years), you will begin making larger payments to your lender. In some cases, you may need to repay it in full at that time; this is also called a balloon payment. 

Example of a HELOC

If your home is now worth $300,000, and you have a remaining balance of $150,000 on your initial mortgage loan, the amount you can borrow from a HELOC might be at least $90,000:

$300,000 (current home value) x 0.80 (combined borrowing limit) – $150,000 (initial mortgage) = $90,000

You could withdraw $10,000 from that balance to repair your home’s roof and then withdraw another $5,000 three years later to pay off a high medical bill. A HELOC works like a revolving line of credit, not a lump-sum payment. So unlike other equity products, you only borrow—and pay interest on—the funds you use.

Terms and eligibility

HELOC
Minimum credit score	650 – 660*
Income requirement?	Yes*
Monthly payments?	Yes
Interest?	Yes
Borrowing limit (initial mortgage plus new loan)	Up to 85% of your home’s value*
Closing costs	Vary by lender
Term	5 – 30 years

Pros and cons

Pros

• No restrictions on how you spend borrowed funds

• Allows you to withdraw funds when needed

• Interest may be tax-deductible

• May only require interest payments for the first few years

• You only pay interest on what you use

Cons

• Requires a second monthly payment

• Requires closing costs

• Interest rate can increase over time

• May require a balloon payment

• Uses your home as collateral

To compare options, check out the best home equity lines of credit.

Cash-out refinance

How it works

With a cash-out refinance, you replace your mortgage loan with a new, larger one. You then use that loan to pay off your balance, and you get the remaining funds back in cash. In some cases, your loan may have a different term (longer or shorter payoff time) and a different, often lower, interest rate.

As with the other home equity options, you can use the funds on anything you like. You can typically get a new mortgage worth 80% to 85% of your home’s value with a cash-out refinance, and you may have fixed- and variable-rate options. You’ll also pay closing costs of about 2% to 5%, just as you would on a traditional mortgage. 

Example of a cash-out refinance

Say you have a current balance of $200,000. You could refinance into a $250,000 loan, pay off your current mortgage, and get $50,000 cash in return. You could then use that money for anything you like.

Terms and eligibility

Cash-out refinance
Minimum credit score	600 to 640*
Income requirement?	Yes*
Monthly payments?	Yes
Interest?	Yes
Borrowing limit (initial mortgage plus new loan)	Up to 85% of your home’s value*
Closing costs	2% – 5% of the loan amount
Term	5 – 30 years

Pros and cons

Pros

• No restrictions on how you spend borrowed funds

• Does not require a second payment

• The interest may be tax-deductible

• May offer lower interest rates than other options

Cons

• Requires closing costs

• Your interest rate and terms may change

• If your home loses value, you could end up owing more than it’s worth

To compare options, check out the best cash-out refinance companies.

Home equity sharing agreement 

How it works

Home equity sharing agreements, also referred to as home equity investments, are another option. Unlike the previous products, the homeowner does not take on additional debt or have monthly payments. 

With a home equity sharing agreement, an investor purchases a share of your equity and gives you a lump-sum payment, essentially buying a portion of your home’s future value. You buy out their share when you sell, you refinance, or the term ends. In some cases. you may also need to repay the initial investment.

Equity sharing companies only operate in select markets, and the amount you can get depends on your location, equity stake, home value, and more. Some investors offer up to $600,000 in funding for homeowners with a large share of equity in a high-value home. You may pay a 3% to 5% service fee for these arrangements, as well as any third-party fees (such as an appraisal fee). 

Example of a home equity sharing agreement

Let’s say you need $150,000 to cover a major home renovation. You might sell 20% of your future equity to a company like Hometap or Point in exchange for $150,000 in cash. After five years, you sell the home for $900,000. 

You’d then owe the equity sharing company $180,000—or 20% of the home’s sale proceeds.

Terms and eligibility

Home equity sharing agreement
Minimum credit score	500*
Income requirement?	No
Monthly payments?	No
Interest?	No
Borrowing limit (initial mortgage plus new loan)	Varies by company
Closing costs	3% – 5% of the investment amount
Term	10 or 30 years

Pros and cons

Pros

• No restrictions on how you spend borrowed funds

• No monthly payment

• No interest costs

• No extra debt

Cons

• May have shorter terms than other options

• Could result in a significant loss of equity if your home appreciates a great deal

• Not available everywhere

To compare options, check out the best home equity sharing companies.

Reverse mortgages

How it works

A reverse mortgage allows homeowners 62 or older to convert their home equity into cash without selling their home. Instead of making monthly mortgage payments, the lender pays you a lump sum, monthly payments, or a line of credit. The loan is repaid when you sell the home, move out permanently, or pass away.

Reverse mortgages insured by the Federal Housing Administration (FHA) are known as home equity conversion mortgages (HECMs). They’re the most popular type of reverse mortgage, and the amount you can borrow depends on your age, the home’s value, and current interest rates.

Example of a reverse mortgage

If you’re 70 years old and your home is worth $400,000, you might be able to borrow up to $220,000 with a reverse mortgage. You can choose to receive this as a lump sum, monthly payment, or a line of credit.

Terms and eligibility

Reverse mortgage
Minimum age	62
Minimum credit score?	None
Income requirement?	None
Monthly payments?	No
Interest?	Yes
Borrowing limit (initial mortgage plus new loan)	Varies based on age, home value, and interest rates
Closing costs	Varies by lender
Term	Loan is due when you sell, move out, or pass away

Pros and cons

Pros

• No monthly mortgage payments

• Funds can be used for any purpose

• You retain ownership of your home

• Nontaxable income

Cons

• Reduces your home equity over time

• Your home must be your principal residence

• Loan is due if you move out or pass away

To compare options, check out our guide to the best reverse mortgage companies.

How long does it take to get equity out of your home? 

Home equity sharing agreements are likely your fastest path for cash due to the lack of an underwriting process, and your credit and income matter less. (These are based more on the property value than anything else)

HELOCs, home equity loans, and cash-out refinances typically take longer because the lender examines your finances and assets more carefully. Most refinances close in 30 to 45 days.

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Can you take equity out without refinancing?

How soon can you pull equity out of your home?

Generally, you can pull equity out of your home as soon as you have enough equity to meet the lender’s loan-to-value ratio (LTV) requirements. 

Many lenders require an LTV of 80% or less, meaning you need to have at least 20% equity in your home: 

• If you put down at least 20% when buying your home, you may be able to access your equity immediately. 
• If you put down less than 20%, you may need to wait until you’ve built up enough equity through your monthly mortgage payments or home value appreciation.

These percentages are general guidelines. Some lenders may have higher LTV requirements (meaning you’ll need less than 20% equity) and lower LTV requirements (meaning you’ll need more than 20% equity).  

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Tip

Some lenders (not all) impose a “seasoning period” before you’re allowed to apply for a home equity loan. This waiting period is usually six to 12 months after you purchase or refinance a home, but it can sometimes be shorter. For instance, Citizens Bank has a 90-day seasoning period for HELOCs, and Credit Union of Southern California has a seasoning period of up to 45 days.

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What is the cheapest way to get equity out of your house?

The most cost-effective way to access your home equity is usually with a HELOC. A HELOC often has lower upfront costs and interest rates compared to other options, and you only pay interest on the amount you borrow. So if you only borrow what you need, you’ll pay less overall.

But the cheapest option may depend on your situation. 

• A home equity loan might be less expensive in the long run if interest rates are low and you prefer fixed payments. 
• A cash-out refinance could save you money if current interest rates are lower than your current mortgage rate and you want to refinance your entire mortgage. 
• Home equity sharing agreements and home sale-leasebacks could be inexpensive ways to access equity if you want to avoid taking on more debt. However, the trade-off is having to share future appreciation with the investment company or pay rent.
• A reverse mortgage may be the cheapest option to pull equity out of your home if you’re at least 62 and want to avoid making payments until you sell your home, move out, or pass away. 

Should you pull equity out of your home? 

Pulling equity out of your home can be expensive in the long run and may extend the time it takes to pay off your debts. 

But in certain scenarios, using home equity might be a good idea:

• You’re using the funds for home improvements. A loan to make repairs or renovations that increase your home’s value could be a wise investment. Focus on projects that offer the best return on investment and boost your equity.
• You’re paying off higher-interest debts. Mortgage products often have lower interest rates than credit cards and personal loans. If you use the funds to pay off high-interest debts, you could save money on interest and simplify your finances.
• You know you’ll live in the home for a while. Using your home equity comes with costs, so make sure you stay in the home long enough to recoup those expenses and reap the benefits. If you plan to move soon, it may not be the wisest choice.

Always consult a financial professional, accountant, or mortgage professional to determine whether tapping your home equity is the right move or whether an alternative is a better fit.

What our expert recommends

Erin Kinkade

CFP®

If you’re considering pulling equity out of your home, but it’s not an emergency or an urgent need, I would advise against it in a high-interest-rate environment (such as the one we’re seeing now, in May 2024) and suggest waiting until interest rates decline.

How to get started

You can get started in three general steps.

1. Calculate how much equity you’re working with (just take your home’s current value and subtract your mortgage balance). You can use our home equity loan calculator to help you determine your available equity.
2. Decide which home equity product is best for your needs. Consider the pros and cons of each one mentioned about above and how they align with your goals. 
3. Shop around with lenders to see which offers the best rates and terms. Our editorial team has spent hundreds of hours researching the market to find the best home equity products. If you want to jump-start your search for the perfect loan, check out our top picks here: 

• Best home equity loans
• Best home equity lines of credit (HELOCs)
• Best home equity sharing agreements
• Best cash-out refinances
• Best reverse mortgages