CBS News
5 important home equity loan refinancing requirements to know
Getty Images/iStockphoto
In recent years, many homeowners have been hesitant to refinance their home equity loans because loan rates have remained elevated. While the Federal Reserve doesn’t set loan rates for mortgage loans, including rates on home equity loans, they tend to rise and fall with the Fed rate. The Fed has held rates at a target range of 5.25% to 5.50% since May 2023, and not surprisingly, home equity loan rates have remained elevated in this high-rate environment. As of August 9, the average rate on home equity loans was 8.59%.
More recently, though, inflation is showing signs of cooling and mortgage rates have started to fall in tandem. Many analysts now anticipate the Fed will lower rates in the coming months, and lenders have started factoring this into their lending rates. That means if you took out a home equity loan at some point in the last couple of years, you may be paying more than you would at today’s rates.
As a result, it may be worth considering whether refinancing your home equity loan makes sense. Before you do that, though, it’s important to know the requirements that can come with it.
Learn more about today’s top home equity loan options and start the refinancing process now.
5 important home equity loan refinancing requirements to know
Don’t start the home equity loan refinance process until you’re sure you meet these common requirements.
1. Sufficient home equity
Before you get too far along in the process, it’s a good idea to verify that you have enough home equity to qualify for refinancing. Home equity is the estimated market value of your home, minus your mortgage balance and any other loans secured by your home.
So, if your home is valued at $400,000 and you owe $200,000 on your mortgage and $50,000 on your existing home equity loan, your home equity is $150,000. In this example, your home equity of 37.5% is well above the 15% to 20% minimum most lenders require to take out a home equity loan.
Start comparing today’s best home equity loan rates and find the best option for you.
2. Strong credit
Credit score requirements vary by lender, but most want a FICO score of 680 or higher when refinancing a home equity loan. That said, some home equity loan lenders have strict credit requirements and require a minimum credit score of 720 while others are willing to work with bad credit borrowers with scores below 680 — especially if you have substantial equity in your home. Generally, however, the higher your credit score is, the better your chances of loan approval and securing favorable terms.
If your credit score is lower than you’d like, it may make sense to try and quickly build your credit score before applying. Even a modest credit bump from the fair credit range (580 to 669) to the good range (670 to 739) could help you qualify for a lower interest rate that saves you thousands of dollars over the life of the loan.
“The easiest way to improve a credit score over a short period of time is to lower your credit utilization,” says Ralph DiBugnara, the founder and president of Home Qualified in New York City.
Credit utilization is the amount of your available credit limits you’re using on revolving credit, like a credit card or line of credit. Generally, the lower your credit utilization ratio, the better, so paying down your debt balances — or getting credit line increases — may strengthen your credit.
“A good utilization rate that will improve your credit score is below 30%,” notes DiBugnara. “If a credit card has a max limit of $1,000, then the debt on it would need to be $300 or under to create an improved score.”
3. Sufficient income
Lenders also want to verify your income is strong enough to afford the payments on the new home equity loan you’re refinancing with. Your income is also a factor your lender will consider when calculating your maximum loan limit.
As such, be prepared to show pay stubs, W-2s, tax returns and other forms of verification that prove you have enough income to comfortably afford the new loan payments.
4. Low debt-to-income ratio
One of the most important factors home equity lenders consider before approving or denying a loan is your debt-to-income (DTI) ratio. This measurement reveals how much of your monthly gross income must go toward your monthly debts. Lenders typically require a DTI ratio of 43% or less, with lower ratios being more preferable.
“A low DTI shows that the borrower has additional cash flow that can be used for purposes other than debt payments,” says Josh Jampedro, CEO of Home Loan Advisors. “This is an indicator of overall financial strength, which is a sign that the borrower will have the ability to repay the mortgage, even if cash flow decreases.”
5. Low combined loan-to-value ratio
Lenders also don’t want to approve a home equity loan if it would leave a borrower with too much mortgage debt. When reviewing your application, your lender will calculate your combined loan-to-value (CLTV) ratio, which is the combined total of all loans on the property — including the primary mortgage and the home equity loan you’re applying for.
This figure is then compared to the property’s value to determine the CLTV ratio, which lenders typically require to be below 90%. So, if your home is worth $500,000, your total outstanding mortgage balances should not exceed $450,000 to meet this requirement.
Adam Fingerman, a business analyst at Navy Federal Credit Union, points out that optimizing the value of your home through renovations that enhance curb appeal can improve your ratio.
“Paying down your mortgage balance can be another strategy to improve your CLTV. By reducing your mortgage balance, you’re reducing how much you owe, which can reduce your score,” Fingerman says.
The bottom line
If you took out a home equity loan with a high rate in the last few years, it may be worth looking at current rates and running the numbers to see how much you might save. If refinancing could work in your favor, consider getting rate quotes from at least three home equity lenders. Every lender sets its own lending criteria and offers different rates and terms, so shopping and comparing home equity loans could help you find the best deal.
Hollywood actor Keanu Reeves made his professional auto racing debut on Saturday at the famed Indianapolis Motor Speedway.
“The Matrix” star, who qualified 31st out of 35 cars, ran as high as 21st before a single-car crash a little more than halfway through the 45-minute race briefly stopped him in his tracks.
Darron Cummings / AP
The 60-year-old spun into the grass without a collision on the exit of Turn 9 when he had about 21 minutes of racing left. He re-entered the course and continued driving, signaling he was uninjured.
Reeves finished 25th.
The actor is competing at Indianapolis in the Toyota GR Cup, a Toyota spec-racing series and a support series for this weekend’s Indy 8 Hour sports car event. He has a second race on Sunday.
Darron Cummings / AP
He is driving the No. 92 BRZRKR car, which is promoting his graphic novel “The Book of Elsewhere.” He is teammates with Cody Jones from “Dude Perfect.”
Reeves has previous racing experience as a former participant in the Toyota Grand Prix of Long Beach in the celebrity race. Reeves won the event in 2009.
A passenger successfully landed a small plane on Friday after the pilot had a medical emergency, the Federal Aviation Administration said.
The twin-engine Beechcraft King Air 90 was traveling from Henderson Executive Airport in Las Vegas, Nevada to Monterey Regional Airport in California, with a pilot and one other person on board, the FAA said.
The pilot suffered an unspecified medical emergency while flying, the FAA said, forcing the passenger to take the controls and make an emergency landing at Meadows Field Airport in Bakersfield, California.
The Kern Fire Department told CBS News affiliate KBAX that firefighters were called to a report of a medical emergency on the plane. The pilot was reported to be “incapacitated,” the fire department said. Firefighters saw the plane approach and land safely, then “chased” the plane down the runway in emergency vehicles to meet it.
The FAA did not release the passenger or pilot’s identities nor give an update on the pilot’s condition. The pilot was taken to an area hospital by ambulance. The passenger did not report any injuries.
The FAA and the National Transportation Security Board will investigate the incident, the FAA said.
Congolese authorities began vaccination against mpox on Saturday, nearly two months after the disease outbreak that spread from Congo to several African countries and beyond was declared a global emergency by the World Health Organization.
The 265,000 doses donated to Congo by the European Union and the U.S. were rolled out in the eastern city of Goma in North Kivu province, where hospitals and health workers have been overstretched, struggling to contain the new and possibly more infectious strain of mpox.
Congo, with about 30,000 suspected mpox cases and 859 deaths, accounts for more than 80% of all the cases and 99% of all the deaths reported in Africa this year. All of the Central African nation’s 26 provinces have recorded mpox cases. Officials in Congo previously told CBS News that they’ve struggled to diagnose patients and provide basic care in the vast country of 100 million people, where a fragile, under-resourced healthcare system is also burdened by the stigma associated with the virus.
Although most mpox infections and deaths recorded in Congo are in children under age 15, the doses being administered are only meant for adults and will be given to at-risk populations and front-line workers, Health Minister Roger Kamba said this week.
“Strategies have been put in place by the services in order to vaccinate all targeted personnel,” Muboyayi ChikayaI, the minister’s chief of staff, said as he kicked off the vaccination.
Moses Sawasawa / AP
At least 3 million doses of the vaccine approved for use in children are expected from Japan in the coming days, Kamba said.
Mpox, also known as monkeypox, had been spreading mostly undetected for years in Africa before the disease prompted the 2022 global outbreak that saw wealthy countries quickly respond with vaccines from their stockpiles while Africa received only a few doses despite pleas from its governments.
However, unlike the global outbreak in 2022 that was overwhelmingly focused on gay and bisexual men, mpox in Africa is now being spread via sexual transmission as well as through close contact among children, pregnant women and other vulnerable groups, Dr. Dimie Ogoina, the chair of WHO’s mpox emergency committee, recently told reporters.
More than 34,000 suspected cases and 866 deaths from the virus have been recorded across 16 countries in Africa this year. That is a 200% increase compared to the same period last year, the Africa Centers for Disease Control and Prevention said.
A lack of diagnostic materials and basic medicines to treat the virus, which can improve survival rates, have also hampered efforts to contain the outbreak, and access to vaccines remains a challenge.
Moses Sawasawa / AP
The continent of 1.4 billion people has only secured a commitment for 5.9 million doses of mpox vaccines, expected to be available from October through December, Dr. Jean Kaseya, head of the Africa CDC, told reporters last week. Congo remains a priority, he said.
At the vaccination drive in Goma, Dr Jean Bruno Kibunda, the WHO representative, warned that North Kivu province is at a risk of a major outbreak due to the “promiscuity observed in the camps” for displaced people, as one of the world’s biggest humanitarian crisis caused by armed violence unfolds there.
The news of the vaccination program brought relief to many in Congo, especially in hospitals that had been struggling to manage the outbreak. Doctors with several charities working in the country have told CBS News they’re overstretched and short on supplies, even having to use tents and mattresses on the floor of makeshift isolation wards to treat a constant influx of patients.
“If everyone could be vaccinated, it would be even better to stop the spread of the disease,” said Dr. Musole Mulambamunva Robert, the medical director of Kavumu Hospital, one of the mpox treatment centers in eastern Congo.
Eastern Congo has been beset by conflict for years, with more than 100 armed groups vying for a foothold in the mineral-rich area near the border with Rwanda. Some have been accused of carrying out mass killings.
