How does a home equity loan work?

As long as you own or have access to a property that has sufficient equity in it, you can apply for a home equity loan. Most lenders will assess the market value of the home first before approving your application. You also have to provide documentation to process the loan such as credit report, income statement or paystub, bank statements, verified identification, social security number, and other variables. It depends on which lender you are doing business with.

The Collateral

What properties can be put as collateral? You can put as collateral: a land, a rental property, commercial premises, an apartment and your single family home. It is not necessary that the land belongs to the person requesting the personal loan with mortgage guarantee or credit with mortgage guarantee. It can be from a friend or relative, but this person must also sign at the time of the contract.

Things to Consider

Some things to consider when applying for a home equity loan are:

  • You are granted competitive interest rates on the market
  • You have the opportunity to access high loan amounts; depending on your credit, income, existing debt and other variables
  • You have the alternative of paying your loan off within a few years

If you are a risk factor, most financial institutions won’t exclude you. They will evaluate your particular situation and offer you the best loan alternative. However, you should make sure to have all your information current so that the loan process can be smooth.


The home equity loan is a personal loan that uses real estate property to guarantee the loan. You will receive a lump sum from the lender once your loan is approved. You can do anything you want with the funds such as home improvement, international vacation, pay off school loans, and make a major purchase. The lender doesn’t care what you do with the money as long as you pay it back on a timely basis.