# How Long Must You Own a House Before Getting a Home Equity Loan?

The equity in a home is the difference between how much the home is worth and how much you owe on your mortgage. If you are a typical home buyer, you probably made a down payment of 20 percent, so you have 20 percent equity right away. If you got a mortgage that required only 10 percent or even 5 percent down, your equity would be less.

How Long Must You Own a House Before Getting a Home Equity Loan?

## Borrowing Equity

When you take equity out of your home, the question is not how long you have owned the home, but rather how much equity is available to you. When you apply for a home equity loan, the first 20 percent of the equity remains with the lender. In other words, you cannot touch that 20 percent down payment. For simplicity's sake, suppose you bought a home for \$100,000 and put 20 percent down, or \$20,000. You would owe \$80,000. There would be no equity to borrow. If you put 50 percent down on the home, you would have 50 percent equity. You can borrow up to 80 percent of your equity, or \$30,000.

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## Equity Builds Slowly

On home equity loan charts, the "maximum loan to value" is 80 percent. To get an equity loan of \$10,000, you would have to make mortgage payments until you reduced the principal amount owed on the home by at least \$10,000. In this case, it would take just over six years to build \$10,000 in additional equity if your mortgage rate were 4.55 percent and the value of your home remained constant. As the mortgage ages, equity grows more quickly.

To get an accurate reading on when you would be eligible for a home equity loan, put your original balance owed, your mortgage rate and the term of your loan into an online mortgage calculator. After you calculate these numbers, look at the amortization table. It defines each monthly payment, splitting it between the interest payment and the principal reduction. The difference between your initial balance of \$80,000 and your current balance is your equity. If you put down less than 20 percent you will have to reach that level first before you start building equity that you can borrow.