In the mortgage industry, interest in selling home equity mortgage products has exploded. U.S. mortgage holders have $11.5 trillion in tappable equity, and they have clamored to use it. By the end of the first quarter of 2025, second-lien withdrawals reached almost $25 billion, a three-month high not seen in 17 years, according to Intercontinental Exchange, Inc.
Mortgage brokers and loan officers are working at fever pitch to capitalize on surging home equity line of credit (HELOC) demand. Along the way, many may be overlooking a vast pool of prospects — prospective borrowers who have trouble qualifying for agency loans and need a non-qualifying mortgage (non-QM) home equity solution instead. Mortgage professionals who recognize non-QM needs have an advantage in the robust second lien market, which has grown for a variety of reasons.
HELOC action factors
One major factor driving home equity lending growth is interest rates. Currently, 80% to 90% of U.S. homeowners enjoy primary mortgages with rates below 5%. Average market rates for 30-year fixed-rate mortgages at the time of this writing are in the mid-6% range, and for most of the year have been closer to 7%. The reluctance of homeowners to take on higher-priced primary mortgages, combined with stubbornly high home valuations, keep many of them from selling their current properties and buying another one.
Moreover, their properties are aging. The average U.S. home is approximately 40 to 50 years old. Many of the homeowners staying put are looking to renovate their houses. Whether they are upgrading their bathrooms or kitchens, building a home office or adding an accessory dwelling unit, a HELOC (also sometimes referred to as a HELOAN) can provide the funds they need.
Business-purpose property investors need these products, too. They can be used for sprucing up existing properties or purchasing new ones as they expand portfolios. This market segment remains massive. For example, investors who buy properties for renting or flipping have made about 30% of single-family home purchases thus far in 2025, according to data from property analytics firm Cotality.
“Countless Americans need to consolidate their debt. Nearly $1.2 trillion in credit card debt and $1.6 trillion in auto loans have been accumulated by borrowers in the United States. These equity loans can offer them the funds to reduce or eliminate that debt altogether.”
Countless Americans need to consolidate their debt. Nearly $1.2 trillion in credit card debt and $1.6 trillion in auto loans have been accumulated by borrowers in the United States. These equity loans can offer them the funds to reduce or eliminate that debt altogether.
For all these reasons, home equity solutions are flourishing. Non-QM wholesale lenders, however, note a gap in mortgage brokers’ and loan officers’ ability to fully harness the market’s potential. In response, they’ve stepped up efforts to educate channel partners on identifying promising non-QM borrower segments that haven’t been on their radar.
Surfacing non-QM markets
Self-employed individuals represent one major group of potential borrowers that brokers and loan officers need to approach with more focus. There are currently 15 million self-employed workers in the U.S., including many high-net-worth Individuals. Many of them do not qualify for an agency home equity loan, simply based on the income shown on their tax returns.
In these cases, brokers or loan officers can begin to increase their market share among the self-employed by suggesting a valuable alternative to agency loans: non-QM bank statement loans. Instead of using W-2 forms, non-QM lenders analyze 12 or 24 months of bank statements, one-year profit and loss statements, and 1099s to verify borrowers’ ability to repay loans.
Real estate investors in income properties such as single-family homes, townhomes, 2-4 unit properties, and non-warrantable condominiums are another segment offering continued growth potential. Certain borrowers, such as those applying for a mortgage through limited liability corporations (LLC), are ineligible for loans offered by Fannie Mae and Freddie Mac. However, they can qualify for non-QM mortgages based on the debt service coverage ratio (DSCR) cash flow of a subject property, without the need for additional income qualification. The associated quick qualification process also helps to streamline closings, offering an advantage to investors who prefer cash for acting quickly in competitive markets.
Leveraging non-QM flexibility
When loan officers and mortgage brokers master the nuances of non-QM home equity products, they can often present more than one solution in their effort to help every underserved borrower.
For instance, a self-employed borrower thinking about buying her first income property might qualify for a closed-end second lien based on either her bank statements or her expected DSCR income. A loan officer might want to have both scenarios in her back pocket so if one is not ideal, she can explore the alternative.
It’s not just brokers and loan officers who benefit from this product mastery, though. In addition to training their channel partners, wholesale lenders are regularly educating others in their networks, such as real estate agents, builders and financial advisors, on how to identify non-QM second lien candidates. Mortgage industry leaders predict that the home equity market will continue to be exceptionally active for an extended period, offering opportunities for those in the housing finance ecosystem who are familiar with underserved borrowers’ underutilized mortgage options.
