Can a Second Equity Loan Be Taken Out in Less Than One Year?

Many borrowers draw against a home's equity to make home improvements.

Many borrowers draw against a home's equity to make home improvements.

An equity loan is a loan provided to you based on the equity you have on your home. Equity is based on the current market value of a home, minus any liens or mortgages you may have on the property. Unless the laws of your state expressly forbid it, there are no set rules when it comes to multiple equity loans, and different lenders may give you different answers. Whether or not you can take out a second equity loan typically depends on a number of factors.

Your Financial Picture

Your financial situation is the primary factor a lender considers as part of your loan application. If you have a mortgage and an equity loan on your property, you have monthly payments associated with those loans. You may also have monthly payments on credit cards or student loans. In the lending world, the ideal borrower makes enough income so monthly debt payments total around 35 percent of their total monthly income. If a monthly payment on a second equity loan puts your debt ratio too high relative to your income, you may not qualify.

Your Credit

Your credit profile also makes an impact on whether you qualify for a second equity loan, as noted by Bankrate. Good credit is a score above 700, and it is achieved by regularly paying bills on time, and keeping debts low. If you scores are lower, if you have some recent late payments, or if you have a history of prior credit problems, it may be a challenge getting approved.

Your Equity

Your home's equity also plays an important part in getting approved for an equity loan, whether it is your first equity loan, or your second. Many lenders hesitate to loan money up to the full value of the property, because there is a greater risk of default, particularly if the home loses value in the market. If your loan balances are lower with respect to the property value, you have a greater chance of getting approved for another equity loan. Lending on a home with $100,000 in remaining equity is less risky than lending against a property with only $10,000 in equity.

Current Loan Balance

You current loan balances could be another factor your lender considers when making a loan decision. Even if you took out a recent equity loan against your home, it may have little bearing if the loan amount was small, or if you have paid off a significant portion of that loan. If either your primary mortgage note or equity loan is soon to be paid in full, most lenders are happy to lend again.


About the Author

Sara Melone is a mother of three and a graduate of UNH. With prior careers in insurance and finance, photography, as well as certifications in fitness and nutrition, Melone draws directly from past experience and varying interests. She contributes with equal passion to birth journals, investment blogs, and self-help websites.

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