Borrowers are eager to tap into home equity — how can lenders meet the demand?

Home prices are steady, if relatively high in terms of historical home prices, and homeowners are staying in their homes longer than ever before. The result? American homeowners currently have more tappable home equity than ever — a net $30 trillion in home equity that can be tapped right now, according to HousingWire lead analyst Logan Mohtashami.

“That’s bigger than the total GDP of China,” Mohtashami said. “There’s more tappable equity here than any other time in history, maybe.”

This increase in home equity means more borrowers are interested in tapping into that equity, resulting in growth in the home equity lending space. 

“We’re definitely seeing more customers come to the table and ask questions, such as, ‘What is a home equity loan? What do my payments look like?’” said Craig Austin, chief revenue officer at FirstClose. “It’s an exciting time for home equity, for sure.” 

Borrowers are looking for ways to use the equity in their home to their advantage for things like their kids’ college expenses or investment opportunities, said Virginia Wilson, AVP Consumer Processing at Space Coast Credit Union. 

Outlook for home equity loans is positive

“Our volume has definitely increased significantly from where it had been in the past, and we’re seeing it stabilize a bit,” Wilson said. “We’re not having a huge peak and spike in volume like we did last summer, but it has stabilized and it is growing.”

And it looks like the space could keep growing, if mortgage rates stay above 5%. As lenders struggle with declining purchase volume, new players may enter the home equity lending space due to the opportunities there.

Those lenders will then have to determine how to deliver customers a digital experience while maintaining the differences between a purchase mortgage and home equity transaction.

Streamlining the transaction

“There is a sizable difference between a first mortgage and a home equity loan,” Austin said. “I think there are a lot of players in the space that have tried to water down their first mortgage experience and make it more geared toward home equity, but it really doesn’t work that way. It’s two different worlds; you have to treat them as such.” 

Space Coast had to make changes to its own process when moving its home equity business out from underneath its first mortgage umbrella, Wilson said.

“The best and easiest example is our closing package went from 68 documents to 15,” she said. “We removed all of these documents that are required on first mortgages. We found opportunities like that all throughout the process.”

What made the biggest impact in streamlining the home equity process for Space Coast, Wilson said, was changing their loan origination system and partnering with FirstClose to facilitate home equity loans. 

“With partners we work with like FirstClose and MeridianLink for our loan origination system, we’ve added and changed things to make the process so much smoother,” she said. “Going from 45- to 60-day closings to an average of under 20 days — that’s a huge difference.” 

To learn more about home equity in 2023 and how the right technology partner can help streamline and optimize the home equity lending process, check out our webinar “A complete guide to home equity products.”