What disqualifies you from getting a home equity loan?

Home equity loans are tremendously popular with homeowners. In fact, 4.2 million properties were covered by a home equity loan during the first quarter of 2025, according to TransUnion. Even so, accessing home equity remains a challenge for many homeowners, with around a third of home equity loan applications being denied.

Knowing what disqualifies you from getting a home equity loan can give you more power to control your situation. Whether you’ve already applied and been denied by a lender or if you’re nervous about your approval odds before you submit an application, this post will help you understand the factors that might hold you back from getting a home equity loan. 

What disqualifies you from getting a home equity loan?

Lenders consider many factors when they process home equity loan applications, which we’ll discuss next. It’s important to remember, though, that each lender works differently when it comes to setting its own home equity loan requirements. 

Some lenders are more strict than others, for example, and they may change their requirements over time in response to things like broader market conditions. Let’s take a look at some of the specific reasons why lenders might deny a home equity loan application. 

You don’t have enough equity in your home 

Most lenders allow combined loan-to-value ratios (CLTV) of up to 80%. This means that your new home equity loan — plus your existing mortgage — can’t be more than 80% of your home’s appraised value. In other words, you aren’t even eligible for a home equity loan until you have at least 20% equity in your home. 

New homeowners who put down smaller down payments on a mortgage can take a few years to reach the point where they’re able to pull equity out of their homes. The real estate market in general can also impact this, as home values may rise or fall. You’ll have more equity in your home when values rise, and vice versa. 

What you can do: To increase the amount of equity you have in your home, you can make extra payments toward your mortgage to reduce its balance (and increase your home equity). 

Your debt-to-income ratio is too high

One of the ways that lenders assess whether you can afford a home equity loan is by calculating your debt-to-income (DTI) ratio: the minimum required payment on your other debts, divided by your monthly income. 

In general, you’ll need a DTI ratio of 43% or less, meaning that no more than 43% of your income will be going toward your debt payments. This ensures that you’re not overextending yourself by taking on too much credit. 

What you can do: To lower your DTI ratio, you’ll need to either increase your monthly income or pay off some of your existing debts, like credit cards, to remove those monthly payment obligations.  

Your credit score is too low

Lenders typically require a credit score of at least 680 to qualify for a home equity loan, often higher. In fact, 56% of approved applicants had a credit score of 760 or higher during the first quarter of 2025, according to TransUnion. 

Lenders also frequently use your credit score as a major decision factor when it comes to setting your interest rates, making this an especially important point to consider if you’re in the market for a home equity loan.

What you can do: Work on improving your credit score by doing things like paying down your credit card balances and setting up your bills on autopay so that you never pay late. If you pay down your mortgage so that you have more equity in your home, some lenders may be more willing to approve you for a home equity loan even with a lower credit score.  

You have an adverse credit history

It’s not just your credit score that matters; it’s what's on your credit report, too. Home equity loan lenders will comb through your reports with a fine-tooth comb, looking for any signs of past missteps when it comes to your payment history. 

The good news is that nothing lasts forever. Credit inquiries from other loans fall off your credit report after two years; most other information goes away after seven years, while Chapter 7 bankruptcies are removed after 10 years. In even better news, the negative fallout from those events generally fades after a few years, even well before they actually fall off your credit report entirely.

What you can do: Be upfront when shopping around for lenders and ask them about their policy for approving home equity loans for people with adverse credit marks. You may need to search harder for a lender or wait for the item to go away.  

Your income isn’t consistent enough

Similarly, it’s not just the amount of income you have — lenders want to know how stable it is, too. Homeowners who work salaried jobs or who earn guaranteed benefits are more likely to be able to pay their mortgage each month than someone who earns all their yearly income in bits and spurts, after all.

If you’re earning income in a non-standard way, you can expect extra scrutiny from lenders. Typically, you’ll need to submit extra documents, and more of them, so that lenders can get a clear idea of your income history over a longer period of time than a traditional applicant. 

What you can do: Provide at least two years’ worth of profit and loss (P&L) statements. You may also need at least two years’ history of tax returns and/or bank statements. If your income has fluctuated a lot over this period of time, you may need to wait until it stabilizes before a lender will approve your application. 

You don’t have homeowners insurance

Homeowners with paid-off homes aren’t beholden to a mortgage lender that requires them to carry expensive homeowners insurance, and so people sometimes drop their policies to save money. A home equity loan lender, however, will require your home to be insured so that if it’s destroyed, they can recoup their costs from the insurance proceeds. 

What you can do: Get homeowners insurance quotes from at least three companies, ideally more. Check your monthly budget to see if you can afford this extra cost, in addition to your potential home equity loan payment.

Your property doesn’t meet lender requirements

Lenders sometimes set limits on the types of properties they’ll accept as collateral for the loan. This could become a problem if you have a unique living situation, such as on a working farm, in a multi-family residential unit, or in a manufactured home. 

What you can do: You may need to search harder to find a lender willing to approve a home equity loan on a non-standard property, or look into other home equity financing options entirely. 

Your home has other liens on it

In order to use your property as collateral for a home equity loan, you’ll need to have a clear title to your home, aside from any mortgage liens (if you still have one, that is). This is what allows your lender to recoup their costs if you don’t repay the loan. Without it, a lender wouldn’t have that assurance, and so they likely would disqualify you for a home equity loan. 

It’s important to know that your home might have a lien on it even if you didn’t take out another debt. If you didn’t pay your HOA dues or taxes, for example, you might have a lien on your home that could prevent you from getting a home equity loan.  

What you can do: Unpaid debts and bills can be a red flag that your home might have a lien, but you can also check with your county recording office to be sure. You’ll need to remove those liens before you can qualify for a home equity loan.. 

What doesn’t disqualify you from getting a home equity loan?

We’ve covered many reasons that lenders can deny homeowners for a home equity loan, but it’s also important to know what they can’t use to disqualify you for a loan. Under the Equal Credit Opportunity Act, lenders are not allowed to use the following factors when assessing your application for a home equity loan:

• Age
• Race
• Color
• Gender
• Religion
• Marital status
• National origin
• Sexual orientation
• Receiving income from public assistance

Alternatives if a lender denies your home equity loan application

If you’re denied for a home equity loan, don’t feel discouraged—it usually just means it’s time to explore a different path to get the funding you need. Here are a few ideas:

• Try another lender: Not all lenders have the same requirements, so if one turns you down, another might be a better fit. You can minimize the impact on your credit by gathering loan estimates within a two-week period.
• Home equity line of credit (HELOC): A HELOC is a line of credit you can draw from, repay, and borrow again from at will during a multi-year draw period. HELOC requirements are similar to home equity loans, but expanding your lender options gives you additional chances to get approved for home equity financing. 
• Home equity investment (HEI): An HEI offers a lump sum of funds but requires no monthly payments, since you’ll repay the funds as a single payment in 30 years. It’s often easier to qualify for an HEI than a traditional home equity financing product because there are no income requirements or need for perfect credit. 
• Cash-out refinance: A cash-out refinance is a larger loan that is split into two portions: one to pay off your existing mortgage balance, and the remainder is given to you to use as you wish. Cash-out refis offer long loan terms, which can result in low loan payments.
• Reverse mortgage: Available for homeowners over 62 years of age, a reverse mortgage allows you to draw from your home’s equity without making any monthly payments. They also don’t generally have any income or credit requirements, either. 
• Personal loan: Most personal loans are unsecured, meaning they don’t rely on the amount of equity in your home at all. You may pay slightly higher fixed interest rates and be limited to a somewhat smaller loan amount because of that, but they can be a good option for homeowners who don’t yet have enough equity. 

Frequently asked questions

Why would a home equity loan get denied?

Lenders can deny home equity loan applications for various reasons, including a high debt-to-income (DTI) ratio, a low credit score, an adverse credit history, insufficient equity, and other factors. Some home equity financing options, like home equity investments (HEIs), are more widely accessible to people who may not otherwise qualify for funding.

What income is needed for a home equity loan?

There isn’t a set income limit to get a home equity loan, per se. You’ll generally need enough stable income so that your monthly debt payments take up no more than 43% of your take-home pay. Some borrowing options, like home equity investments (HEIs), require no income at all.

Is it hard to get approved for home equity products?

In 2023, 69% of homeowners applying for a conventional second mortgage (i.e., a home equity loan or HELOC) were approved, while 31% were denied. Low credit scores and a limited income are common reasons why homeowners are denied for most home equity products, although some, like home equity investments (HEIs), offer more flexible underwriting. 

Final thoughts

You’re not alone if you don’t qualify for a home equity loan. The good news is that, in most cases, there are things you can do to improve your odds of getting the funding you need. 

You might be able to work on improving your credit score, for example, so that you aren’t disqualified from getting a home equity loan the next time you apply in the future. In other cases, you might want to consider alternate home equity financing options, which can be easier to qualify for and offer additional benefits. 

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