Owning your home outright is a strong financial position. It also means you have a lot of equity you could borrow against, whether to help family, renovate, invest or handle a large expense. Here’s how borrowing against a paid-off home works, and what to think about before you do.

Why lenders like paid-off homes

With no existing mortgage, a new lender would be first in line, and there’s plenty of equity protecting the loan. That makes a mortgage-free home one of the easiest properties to borrow against, even if your income is modest or irregular.

Your options

A new mortgage

Borrow a lump sum with regular payments over a set term and amortization. Good when you need a specific amount for a specific purpose.

A home equity line of credit

Set up a credit limit you can draw on as needed. Useful for staged costs or as a safety net. Banks and credit unions will want to see that you qualify on income.

An equity-based mortgage

If your income is hard to document, or you’re retired with modest income, an equity lender may approve you where a bank won’t. See equity mortgages for retirees and when your income is hard to prove.

A reverse mortgage

For homeowners 55 and older, a reverse mortgage requires no regular payments. It’s a very different product. See equity mortgage vs reverse mortgage.

What lenders will ask for

  • Proof of ownership and your property tax notice
  • Proof of home insurance
  • An appraisal of the home. See how lenders value your home.
  • Proof of income, in whatever form the lender accepts
  • What the money is for

Think about why you’re borrowing

A paid-off home is security for your future. Borrowing against it makes sense for things that improve your position, like a renovation that adds value, helping a child into a home, or replacing expensive debt. If the home came to you through an estate, see equity in an inherited home. It deserves more caution for spending that won’t be there in a few years. See the risks of borrowing against your home.

Keep a cushion

Just because you can borrow a large share of your home’s value doesn’t mean you should. Borrow what you need and keep plenty of equity in reserve.

This article is general information, not financial or legal advice. Lender requirements, rates and fees change and depend on your situation.