Home Equity Loans
The following guidelines provide insight into what lenders are looking for when applying for a loan.

Your credit report is one of the main considerations for a home equity loan. It shows the lender how much you owe, and if you have any bankruptcies, judgments, repossessions or delinquent accounts.

Lenders can allow for compensating factors to offset derogatory credit, such as the loan to value, or job stability. A good credit history allows the lender to offer a higher loan to value, a higher loan amount, and a better rate. A low credit score means the lender may offset the risk by reducing the maximum loan to value, and raising the interest rate.

Job stability is determined by how long you have been with your current employer, and how long you have been in the same type of work. Changing jobs frequently, especially in different fields of employment, is considered a higher risk for getting a home equity loan. 

Your income is factored into a debt ratio. Salary or wages are figured on a monthly basis, while overtime or bonuses will be averaged for the last year or two. For self-employed borrowers, the net income is averaged for the last two years. Other income may be included, depending the history of the income and how long it will continue. For example, a part-time job needs a two year history.

The debt ratio has two figures, the housing expense divided by the total income, and the total of all debts divided by the total income. If credit cards or other loans are going to be paid off with the new home equity loan, those payments will not be included in the ratio. 

The loan to value also has an influence. The more equity you have, the more flexible lenders will be. With sufficient equity and very good credit, some lenders will not even verify your income.