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Key Takeaways
- You can get a loan on a home you own outright by using your home’s equity as collateral.
- Most lenders let you borrow up to 80% of your home’s value (which, on a paid-off home, equals your equity).
- Homeowner loans, like home equity loans, HELOCs, and cash-out refinances, let you borrow without selling your home.
- Taking a loan against your house provides cash for major expenses but puts your property at risk if payments lapse.
Check your loan options. Start here
When a borrower owns a home outright, they can use its value as collateral for a homeowner loan. Additionally, when you no longer have a mortgage, the entire market value of the property counts as equity you can borrow against without losing ownership. And many lenders prefer you borrow no more than 80% of your home’s equity, according to the Federal Trade Commission. Because a paid-off home has no outstanding mortgage, that equity equals its full market value.
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Can I get a loan on a house that’s paid for?
Yes, you can get a loan on a paid-off house. If you own a home outright, you can use its equity as collateral for a home equity loan or a new mortgage.
Standard options include a cash-out refinance, a home equity loan, or a home equity line of credit (HELOC). These loans allow you to access your home’s value while maintaining homeownership. Because the loan uses your house as collateral, you’ll often qualify for lower interest rates than with unsecured loans or credit cards.
How to qualify for a loan on a paid-off house
When you’re taking a loan out against your house, lenders will evaluate three essential qualifications:
- Your credit score reflects how reliably you repay debt; higher scores qualify for better rates.
- Your debt-to-income ratio (DTI) measures how much of your income goes toward debt; lower ratios equate to lower risk profiles and improve approval odds.
- Your loan-to-value ratio (LTV) compares the loan amount to the value of your home; lower LTVs mean less risk for lenders.
What experts are saying
Thomas Brock, CFA, CPA
“A big misconception is that a paid-off home guarantees loan approval. However, lenders don’t just assess the value of the property – they also determine whether the borrower has the financial wherewithal to repay the loan. An individual could have millions of dollars in home equity, but if he or she can’t demonstrate a steady stream of income, loan denial is likely.”
What are the risks of getting a loan on a home owned outright?
Taking a loan against your house can be a practical way to borrow money, but it also carries risks. Before you borrow against property owned outright, consider the following:
- Risk of foreclosure: Because the loan uses your home as collateral, missed payments could result in losing the property.
- Reduced equity: Borrowing decreases the portion of your home you own, leaving less equity for future needs or emergencies.
- Market fluctuations: If property values drop, you could owe more than your home is worth.
- Interest and fees: Even with reasonable terms, you’ll pay interest and closing costs.
Best homeowner loans for a house you own outright
If you’re taking a loan against a house you own, homeowner loans can help you access your equity without selling your property.
1. Home equity loan
A home equity loan, also known as a second mortgage, allows you to borrow against your home’s equity. Homeowners can typically borrow up to 80% of their home’s equity. A few lenders, often credit unions, advertise higher combined loan-to-value limits, but these programs are uncommon and typically carry higher rates. Once approved, you’ll receive the entire loan amount in cash and repay it with interest through fixed monthly payments over a set term.
Key points about home equity loans
2. Cash-out refinance
A cash-out refinance allows you to tap into your home’s equity by replacing your existing mortgage with a new, larger one. The lender gives you the difference between your new loan amount and your current mortgage balance in cash. When you own your home outright, most or all of the new loan will come to you as a lump sum.
Key points about cash-out refinancing
Cash-out refinancing requirements
Check your cash-out refinance options. Start here
3. Home equity line of credit (HELOC)
A HELOC is a revolving credit line that lets you borrow against your home’s equity as needed. HELOCs typically have a draw period of 5 to 10 years during which you can borrow and repay, followed by a repayment period of 10 to 20 years.
Key points about HELOCs:
Check your HELOC options. Start here
4. Sale-leaseback program
A sale-leaseback program allows homeowners with bad credit to access their home equity by selling their property to a company or investor and then leasing it back. This arrangement enables homeowners to continue living in the home as tenants while accessing the equity they have built up. If a homeowner needs money but wants to stay in their house, sale-leaseback programs may be a good fit.
Key points about sale-leaseback programs
5. Shared equity agreement
A shared equity agreement is a financial arrangement that may be suitable for homeowners with less-than-perfect credit. An investor provides cash to the homeowner in exchange for a share of the home’s future value appreciation. Unlike a traditional loan, there are no monthly payments involved. Shared equity agreements can be a good option for homeowners who want to access their home equity without taking on additional debt.
Key points about shared equity agreements
6. Reverse mortgage
A reverse mortgage is a loan available to homeowners aged 62 or older that allows them to convert a portion of their home equity into cash. With a reverse mortgage, homeowners do not have to make monthly mortgage payments. These can be useful loans for seniors who want to access their home equity while staying in their homes.
Key points about reverse mortgages
See if you qualify for a reverse mortgage. Start here
How to choose a loan on a home you own outright
If you own your home outright and need financing, the best loan depends on your goals. Here’s how to choose the right homeowner loan for your financial situation:
Verify your home equity loan eligibility. Start here
- If you want to buy another property, a cash-out refinance or home equity loan provides a lump-sum payment with fixed repayment terms, which is ideal for covering a down payment and other upfront home-buyer costs. A HELOC offers flexibility but may come with variable rates and less predictable monthly payments.
- If you’re planning home improvements, consider a home equity loan for a single project or a HELOC for ongoing renovations. A cash-out refinance can also fund upgrades, though extending your term may increase total interest paid.
- If you’re consolidating high-interest debt, a cash-out refinance or home equity loan can help pay off credit cards and personal loans, but this converts unsecured debt into debt secured by your home.
No matter the option, request quotes from at least three mortgage lenders to compare rates, fees, and terms to find the most competitive offer.
Pros and cons of getting a loan on a home you already own
Leveraging a fully paid-off home for a loan has benefits and drawbacks. Here’s what you should consider before taking a loan against your house.
See how to calculate your home equity for a step-by-step breakdown.
Consider looking into our complete HELOC guide as well.
Pros:
Cons:
How to take out a loan against a house you own outright
If you own your home outright and need a loan, there are several ways to tap your home equity. Getting a loan on a home with no mortgage allows you to borrow money against your property for home renovations, debt consolidation, or other large expenses. Here’s how to take out a loan against your house and make the most of your equity.
Get up to speed with home equity loan basics.
Verify your home equity loan eligibility. Start here
- Decide why you need the loan. Before you borrow money against your home, determine your goal and how much you need. Borrowing more than necessary can increase your costs over time.
- Estimate your home’s value. Since this is a loan on a paid-off house, your equity equals your home’s full market value. Use online valuation tools or schedule a professional appraisal to understand your home loan based on property value.
- Review your credit. Check your credit report before applying. A higher score can qualify you for better loan terms and lower interest rates.
- Compare lenders and loan options. Explore offers from banks, credit unions, and online lenders. Because these loans use your house as collateral, compare offers carefully to find the most competitive rates and lowest fees.
- Prepare your documentation. Gather proof of income, bank statements, and tax returns. Having your paperwork ready can help move the process along quickly.
- Submit your application. Complete the lender’s application and provide any requested documentation. Be prepared to discuss your finances and the purpose of your loan.
- Close and receive funds. Once approved, sign the closing documents and pay any fees. The lender will disburse the funds as a lump sum.
FAQs: I own my house outright and want a loan
Compare loan options from multiple lenders. Start here
The best way to borrow money if you own your home is to use your property’s equity as collateral. Standard options include a home equity loan, home equity line of credit (HELOC), or cash-out refinance. Each of these homeowner loans allows you to tap your equity while keeping ownership, though the right choice depends on your financial goals and how you plan to use the funds.
To borrow money against a house that’s paid off, apply for a home equity loan or HELOC with a bank, credit union, or online lender. The lender will verify your credit score, income, and your home’s market value through an appraisal. Once approved, you can borrow a portion of your equity, typically up to 80% of your home’s value.
Yes, you can get a new mortgage if you own your house outright. It’s called a cash-out refinance, and it uses your home equity as collateral. This type of financing allows you to turn accumulated equity into cash for major expenses or investments.
If your house is paid off, most lenders allow you to borrow up to 80% of your home’s appraised value. The exact amount depends on your credit score, income, and debt-to-income ratio.
Yes, you can take out a home equity loan on a paid-off house. With no existing mortgage, your home’s full value counts as equity, which makes it easier to qualify and often helps you get a lower interest rate. You’ll receive the funds as a lump sum and repay them over a fixed term set by the lender, commonly between 5 and 30 years.
To get equity out of your home without refinancing, consider a home equity loan or HELOC. Both allow you to borrow against your home’s value without replacing your first mortgage. A home equity loan provides a lump sum with fixed payments, while a HELOC gives you a revolving credit line you can draw from as needed.
Should you use your house as collateral for a loan?
Owning your home outright gives you a valuable equity cushion, and you don’t have to sell to access it. A homeowner loan lets you tap that equity for major expenses while keeping ownership. Weigh the lower rates and lump-sum access against the risk of putting your home up as collateral, and compare at least three lenders before you commit. Click the links below to explore the types of loans available and start the process of borrowing against your home.
Additional resources
Using a HELOC to Start a Business
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
By refinancing an existing loan, the total finance charges incurred may be higher over the life of the loan.
