With the increase in home equity levels across the United States, mortgage lenders are making home equity lending more accessible to a wider range of borrowers.
A report released by intelligence firm Keynova Group on Wednesday revealed that nearly all companies offering home equity lending have a digital application process, with about half conducting a soft credit pull before fully underwriting these loans.
The report assessed the digital capabilities and user experiences of 12 top bank and nonbank lenders in the country. Depository lenders included Bank of America, Chase, Citi, Citizens, PNC, Truist, U.S. Bank, and Wells Fargo. Non-depository lenders included Freedom Mortgage, loanDepot, Rate, and Rocket Mortgage.
Accelerated closing options were offered by one-quarter of the lenders, with two lenders advertising home equity funding in as little as one week.
More than half of the home equity lenders allowed customers to lock in a rate online when interest rates are rising. One-third promoted the ability to digitally lock or unlock a fixed-rate loan, enabling borrowers to switch to an adjustable rate if rates are falling.
About 20% of lenders provided the option for qualified customers to make interest-only payments during the draw period for a home equity line of credit (HELOC) to minimize near-term repayment expenses.
Homeowners in the U.S. have been leveraging HELOCs as home prices have surged since the COVID-19 pandemic. HELOC originations increased by 26.5% to approximately 286,000 deals in the second quarter of 2024 from the previous quarter, according to recent data from Attom.
In the second quarter of 2024, HELOCs accounted for $53.6 billion in volume, up from $42 billion in the prior quarter and just below the $53.7 billion volume in the second quarter of 2023.
The Keynova study also revealed that lenders expanded digital access to information about alternatives such as down payment assistance (DPA) programs for buyers or loan modifications for current homeowners.
Half of the lenders reviewed in the report offered customized low down payment products, while 42% provided information on grants and other resources to support affordable homeownership.
For existing homeowners, 83% of lenders offered online content detailing how to initiate the process for a loan modification, repayment plan, or alternative financial assistance.
Amid affordability challenges, lenders have introduced more DPA programs, which have proven to be a lifeline for buyers unable to pay a lump sum at closing.
According to a report from Down Payment Resource, the number of DPA programs for homebuyers reached a record high in the second quarter of 2024. First-time buyers had 1,445 programs to choose from, while repeat buyers had 970 available DPA programs.
“The combination of rising home prices, higher interest rates, and inflation has intensified the financial strain on consumers, prompting lenders to facilitate easier access for homeowners to tap into their home equity or explore affordable home lending alternatives,” said Beth Robertson, managing director of Keynova Group.