Can I Prequalify for a Home Equity Loan or HELOC?

If you’re hoping to tap the equity in your home with a home equity loan or line of credit (HELOC), getting prequalified can allow you to get rate quotes from multiple lenders without impacting your credit score.

Here are some highly-rated options that let you prequalify before submitting a full application. To learn more about the prequalification process, continue reading below.

How the prequalification process works for home equity loans and HELOCs

Prequalifying for a home equity loan or HELOC is often the first step in getting approved. Getting prequalified to borrow from your home equity lets you estimate how much you can borrow and what terms you qualify for, including the interest rate, monthly payments, fees, and more. 

Lenders benefit from prequalification because borrowers may be more likely to apply if they know what to expect. It also allows lenders to collect information about prospective borrowers so that they can follow up. 

Unlike an official application for a HELOC or home equity loan, getting prequalified involves a soft credit check, which won’t affect your credit score. 

Some lenders, however, may use the term “prequalify” but still run a hard inquiry on your credit reports, which can affect your score. It’s wise to confirm which type of credit check the lender will run.

What is the difference between prequalification and preapproval?

Prequalification and preapproval are both steps in obtaining a mortgage or loan, like a home equity loan or HELOC, but they differ in depth and commitment.

Prequalification

• Quick and informal: Based on self-reported financial info.
• No documentation required: Typically involves no credit check or minimal checks that don’t impact your credit score.
• Estimate only: Gives a rough idea of borrowing capacity.

Preapproval

• More detailed: Involves verification of financial info through documentation.
• Credit check: Usually requires a hard inquiry, affecting your credit score.
• More accurate: Provides a specific loan amount, signaling serious buying intent.

Understanding these differences helps in navigating the loan process efficiently, from initial estimation to securing a loan.

How to prequalify for a HELOC or home equity loan

To prequalify for a HELOC or home equity loan, follow these steps:

1. Start by researching lenders online: Visit each lender’s website to find out about their prequalification process. Look for clear indications that checking your rate or getting a personalized rate quote won’t impact your credit score. If this information isn’t clear, don’t hesitate to call the lender and speak with a loan officer for clarification.
2. Go through the prequalification process: If a lender offers prequalification, you’ll likely be able to complete this step online. For a broader view of your options, consider using comparison websites that allow you to see rates and terms from multiple lenders at once. Whether you’re prequalifying with individual lenders or using a comparison site, aim to get quotes from at least three different lenders to ensure you’re getting a competitive offer.
3. Provide your basic information: During the prequalification process, you will be asked to provide basic personal information. This typically includes your:
   • Full name
   • Date of birth
   • Current address
   • Income information
   • Contact details
4. Prepare additional documentation: Some lenders may also request your Social Security number and additional information to complete the prequalification. This step helps them get a better understanding of your financial situation without impacting your credit score.

By following these steps, you can navigate the prequalification process for a HELOC or home equity loan efficiently, setting the stage for securing the financing you need with a clear understanding of your potential rates and terms.

FAQ

Can the terms of my HELOC or home equity loan change after I prequalify?

Yes. Prequalification can give you an idea of the terms you may qualify for, but it’s only based on a few details about you. So your quote may not be the same as the lender’s final offer.

To get a final offer, you must undergo a hard credit check and submit various documentation to prove your employment, income, homeownership, and other details. 

The lender may also require an appraisal, which could affect your eligibility if it comes in lower than expected.

What should I do after prequalifying for a HELOC or home equity loan?

Once you go through the prequalification process with several lenders, narrow down your list of options to the lender that offers the best terms. In addition to the interest rate, compare fees, repayment terms, and other essential features. 

After you pick your lender, you can apply through its website. The lender will provide a list of documents you’ll need. During this process, try to avoid applying for other forms of credit because it can lower your credit score. 

If you prequalify for a HELOC and a home equity loan, consider which option would better suit your needs. If you want a large chunk of money for a one-time project, a loan may be better. But if you want ongoing access to a revolving line of credit, a HELOC might be the right choice.

Recap of lenders that let you prequalify for home equity loans and HELOCs