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With a home equity loan, you can access cash for home improvements, debt consolidation, or other financial needs. This is an effective way to borrow against the equity in your home and pay it back over a long time.
Your house secures a home equity loan, so the amount made available to you is typically larger than an unsecured loan, such as a personal loan. This is true of the minimum amount you can borrow, too—which could present challenges if you’re looking to borrow a small amount.
We’ll look at several lenders’ minimum home equity loan amounts to help you find a small loan.
In this guide:
- What is the smallest home equity loan you can get?
- Lenders offering the smallest home equity loans
- Risks associated with small home equity loans
- Alternative financing for small loans
What is the smallest home equity loan you can get?
Each lender determines its minimum home equity loan or HELOC. We researched the loan amounts of five popular lenders. Their minimums range from $10,000 to $20,000.
The amount you can borrow with a home equity loan or HELOC depends on several factors, including:
- Your equity in the home (i.e., the difference between what you owe on the house and what it’s worth)
- Your overall creditworthiness
- Other requirements the lender establishes
The more equity you have, the more you might be able to borrow with a home equity loan. Many lenders require a combined loan-to-value (LTV) ratio of 80% or 85%. Combined LTV is the ratio of all loans securing the home (including the primary mortgage and home equity loans) to the property value.
|Appraised home value||Outstanding mortgage balance||Desired home equity loan|
To calculate LTV: (Outstanding mortgage balance + home equity loan) ÷ Appraised home value
To determine this for the example scenario in the table above, you’d add your desired home equity loan ($25,000) to the amount you owe on your mortgage ($255,000) to get $280,000. Now divide that amount by the home’s appraised value ($350,000), multiply the result (0.8) by 100, and you know your combined LTV is 80%.
Lenders offering the smallest home equity loans
If you’re considering a smaller home equity loan, you’ll want to understand how the minimum borrowing limits work.
We’ve researched five top borrowing options for small home equity loans. Here’s how they compare:
|Lender||Product||Rates (APR)||Min. Loan Amount||Repayment Terms|
|Bethpage||HELOC||Starting at 5.74%||$10,000||5, 10, or 20 years|
|Regions||Home Equity Loan||Starting at 5.25%||$10,000||7, 10, 15, or 20 years|
|Figure||HELOC||Starting at 5.14%||$15,000||5, 10, 15, or 30 years|
|Truist||HELOC||Starting at 7.70%||$15,000||20 years|
|Citizens Bank||HELOC||Starting at 6.00%||$17,500||15 years|
You’ll notice that each lender sets its own minimums, rates, and eligibility requirements. This reflects their policies for home equity lending.
Lenders set minimum limits on home equity loans to ensure they recoup their investment in the loan. The lender incurs upfront costs to grant a home equity loan. They earn back those costs plus a rate of return as you repay the loan with interest.
Lenders enforce minimums because a home equity loan that’s too small could prevent them from recovering those costs or making a profit.
The minimum loan amount may be your primary consideration when comparing small home equity loans. Still, we urge you to consider the bigger picture and weigh the following:
- Interest rates and the lowest rate you can qualify for
- Loan repayment terms
- Loan fees you’ll pay
- What you’ll need to qualify
Remember: If you opt for a shorter repayment term, you can save money on total interest paid.
Risks associated with small home equity loans
With a home equity loan, you can get cash to pay unexpected expenses, make necessary repairs, or finance other costs. Interest rates are often lower than personal loans or credit cards.
You should be aware of one crucial “catch.” When you take out a home equity loan, you agree the lender will use your home as collateral. Suppose you fail to keep up with your home equity loan payments. In that case, the lender could initiate a foreclosure proceeding against you.
In other words, you could lose your home. It’s essential to consider whether a smaller home equity loan is worth the risk.
When considering a small home equity loan, items to consider include the following:
- Are the payments affordable for your budget?
- Could you continue making payments if you lost your job or were otherwise unable to work?
- What kind of return on investment would the loan offer? For example, would home renovations boost your home’s value and equity?
- How close are you to retirement?
- What interest rate can you get on a home equity loan?
These questions can help you gauge your risk tolerance. If you’re not comfortable with the risk involved in getting a home equity loan, you can explore other lending options.
Alternative financing for small loans
Since your home secures a home equity loan, it might not make sense to use the loan proceeds to pay for expenses with no tangible return. For example, your lender might not prohibit you from using a home equity loan to pay for a dream vacation, but is it worth risking your house?
Home equity loans are just one way to borrow. Consider credit cards or a personal loan to meet your funding needs. Every option has pros and cons, and one may be more appropriate based on your situation.
Credit cards can be a solution for short-term financing.
|Benefits of credit cards|
|Approval in seconds|
|Can use for any purpose|
|Many offer rewards in the form of cash back, points, or miles|
Since unsecured credit cards don’t require collateral, they’re not tied to your home. Plus, instead of a lengthy application process involving multiple credit checks, proof of income, and a home appraisal, you could apply for a credit card online and be approved in under a minute.
You can use credit cards any way you want. For instance, you might use a credit card to pay for home repairs or improvements, cover outstanding medical bills, make large purchases, or pay college education expenses. You could also use a credit card to start a business or buy a car. Many cards offer cash back, points, or miles for eligible purchases.
A credit card might be a better option, particularly if you can pay back the balance in a few months or get approved for a low-interest card. Paying off credit card balances sooner can reduce the total interest you pay, which is crucial if your card has a high annual percentage rate (APR).
Credit card APRs in the double digits are typical, making them much more expensive than a home equity loan. You can avoid owing interest altogether if you can pay your balance in full during your card’s grace period, i.e., after the statement is issued but before the payment due date.
Personal loans can be secured by a bank account or other collateral, though unsecured personal loans are more common.
|Benefits of personal loans|
|Often unsecured (no collateral)|
|Can apply online|
|Same-day approval and access to funds with many lenders|
|APR is often lower than on credit cards|
|Shorter terms than home equity loans mean faster repayment|
With some lenders, you can apply for a personal loan online, upload the required documentation, and get approved within one day. Once approved, your lender might offer same-day access to the funds, making personal loans a faster and more flexible borrowing option than home equity loans.
Lenders may provide personal loans for as little as $500 and as much as $100,000. Because a personal loan is unsecured, interest rates are often higher than a home equity loan but lower than many credit cards.
Most personal loans have terms between two and seven years, though shorter terms are sometimes an option. If you only need to borrow $1,500, for instance, you might be able to get a six-month repayment term. Like a credit card, paying off a personal loan faster could save on interest charges.
Author: Rebecca Lake