ཧEvery lender sets its own terms for home 𒐪equity loans, but most set a minimum amount of about $35,000 on the size of the loan. About $10,000 is the absolute minimum available.

A home equity loan is, essentially, a second mortgage on your home. It is a relatively easy loan to get at a relatively low interest rate because you're offering your home as collateral.

But banks don't make money by offering small loans that are repaid quickly. They make much more money by loaning larger sums that are repaid over longer periods of time.

So, if you're considering obtaining a home equity loan, keep those two things in mind: You're getting a second mortgage, and you're acquiring substantial additional debt that you'll be paying off for years.

You might also consider some alte🔜rnatives to a home equity loan.

Minimum Amounts for Home Equity Loans

Each lenderౠ sets its own requirements and processes for home equity loans. However, there are some fairly standard features across the industry.

One is that you must own a significant amount of equity in your home. Normally, that's at least 15% of the home's market value.

Second, you may have to pay many of the same closing costs associated with a first mortgage, such as loan-processing fees, origination fees, appraisal fees, and recording fees. Though these fees vary between lenders, they could add up to several thousand dollars.

๊Both of those are good reasons for banks and their customers to avoid s♔mall-size home equity loans.

Among major banks, the minimum home equity loan was $10,000, with a maximum combined loan-to-value of 80%. Some lenders expect a minimum loan of $35,000 and even lower loan-to-value ratios.

Those requirements may keep many consumers from applying for a home equity loan. But that's not necessarily a bad thing. The homeowner who needs only a small injection of cash could end up borrowing far more than necessary against the value of their home. Since some home equity loans have early repayment penalties or up-front interest payments, it may not do any good to take a larger loan and pay the unneeded portion back.

Are There Alternatives to a Home Equity Loan?

The minimum size for home equity loans can make them unsuitable for sho🐟rt-term borrowing for small purchases or projects. You will pay interest on a h꧅ome equity loan and the minimum size of these loans effectively imposes a minimum amount of interest as well.

There are a few alternatives to home equity loans. If you🍷 need access to credit over the very short term (a few months maximum), you can use a credit card. However, the interest rates on credit cards are so high that this can be an expensive way to borrow.

Another option is a personal loan. Though personal loans may look similar to a home equity loan, there are some important differences. Personal loans are unsecured, meaning that the loan isn't based on collateral, like a home. Some lenders offer personal loans without origination costs, but even if they do, they won't be as much as closing costs on home equity loans.

You’ll also be able to arrange a personal loan much more quickly than a home equity loan.

The Bottom Line

Most lenders have minimum amounts they are willing to lend via home equity loans. This minimum—along with early repayment penalties and up-front interest expenses—makes home equity loans unsuitable for small loans. If you need a smaller loan than the minimum home equity loan available, consider using a credit card or applying for a personal loan.