How Do Home Equity Loan and HELOC Requirements Differ?

With a home equity loan or home equity line of credit (HELOC), aka a second mortgage, you can borrow against the equity you’ve built in your home through consistent monthly mortgage payments—but you must meet certain requirements to qualify. 

As with first mortgages, lenders look at your credit score, debt-to-income ratio (DTI), and finances to determine your eligibility for a home equity loan or HELOC. You’ll often need a credit score of 620 or higher, a DTI of 43% or less, and a consistent income to qualify for either. Here’s what to know about credit score and other eligibility requirements for each type of financing. 

Table of Contents

1. Is there a difference between HELOC and home equity loan requirements?
2. What are the requirements for a home equity loan or HELOC?
   1. Minimum credit score of 620
   2. Consistent income required
   3. No more than 50% DTI 
   4. At least 15% equity in your home
3. Takeaways

Is there a difference between HELOC and home equity loan requirements?

Eligibility requirements between the two are similar. The two major differences between a HELOC vs. a home equity loan are:

1. You get a flexible credit line with a HELOC and a lump sum with a home equity loan. 
2. HELOCs typically have variable rates that increase or decrease over time, while home equity loans often have fixed rates that stay the same.

To get approved for a home equity loan or HELOC, many lenders require a credit score in the mid-600s, but some may accept a lower score. You’ll likely need manageable debt and consistent income as well.

Most lenders have similar requirements for both home equity loans and HELOCs, though you might find some with slight variations in borrower criteria between the two products. For instance, certain outlets report that Prosper requires a higher credit score for HELOCs than it does for home equity loans, but we were unable to confirm this.  

What are the requirements for a home equity loan or HELOC?

Note that the following are general requirements to qualify for a home equity loan or HELOC, and actual requirements will vary by lender. 

• A minimum credit score of 620 
• A stable income
• A DTI below 50%
• At least 15% equity

If you’re considering a particular lender, ask about its requirements before applying.

Minimum credit score of 620

Your credit score gives lenders insight into your past payment history, your current debt levels, how many credit accounts you have, and other information. If you apply for a home equity loan or HELOC, your lender will run a hard credit check and review your credit reports and scores. This review can help them assess the likelihood that you can repay the amount you borrow. 

In the past, lenders have considered FICO Scores during their evaluation of a borrower’s creditworthiness. 

But the Federal Housing Finance Agency announced in 2022 that lenders would eventually transition to using two scoring models to evaluate borrowers’ credit: 

1. The FICO Score 10 T 
2. The VantageScore 4.0 

The agency expects this transition to be completed in late 2025, so some lenders may still use FICO scores only, while others use both.

Lender	Product	Min. credit score
Figure	HELOC	640
Aven	HELOC	640
Bethpage FCU	HELOC	670
LendingTree	HELOC & home equity loan	620
Spring EQ	HELOC & home equity loan	640
Guaranteed Rate	HELOC	620
Unison	Home equity loan	680
PenFed	HELOC	680

If you have a borderline credit score (e.g., around 620), you will generally experience greater scrutiny, stricter requirements, higher interest rates (if approved), or an increased likelihood of being denied the loan.

Erin Kinkade, CFP®

Read More

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Consistent income required

Many lenders don’t disclose their minimum income requirements for borrowers. Instead, they simply state that borrowers must have a stable, consistent income. Of course, overall debt is also a factor in the borrowing equation: Lenders will consider your income and debt to calculate your DTI. (More on this shortly.) 

Before applying for a home equity loan or HELOC, confirm whether your lender has minimum income requirements if this is a concern. Many are more concerned with your DTI, which is a better predictor of whether you can afford to repay the amount you borrow. 

When you apply, be prepared to provide copies of pay stubs, W-2s, tax returns, and bank statements so your lender can verify your income. The application process for home equity loans and HELOCs is similar to that of first mortgages, so expect to provide plenty of documentation.

Read More

Best Home Equity Loans and HELOCs for Self-Employed; Best Non-Owner Occupied HELOCs 

No more than 50% DTI 

As a general rule, lenders prefer your DTI to be 43% or lower, but some—such as Figure—will accept a DTI of up to 50%. To calculate your DTI, determine your monthly gross income and your monthly debts, including your rent or mortgage, auto loan, credit card payments, and other debts. Then, divide your monthly gross income by your total monthly debt and multiply by 100 to obtain a percentage. 

For example, if you make $6,500 per month and you pay $2,500 toward monthly debts, your DTI would be 38.4%.

($2,500 / $6,500) = 0.384 x 100 = 38.4%

Many lenders don’t disclose DTI requirements on their websites, so it’s important to ask prospective lenders about theirs before you apply for a home equity loan or HELOC. This is especially true if you estimate your DTI and it’s above 43%. 

If your current DTI exceeds your lender’s requirements, you may need to pay down some of your debt or work with a different lender to get approved.

Lender	Product	Max. DTI
Figure	HELOC	50%
LendingTree	HELOC & home equity loan	43%
Unison	HELOC	43%
PenFed	Home equity loan	40%

When my clients prepare to apply for a home equity product, I try to help them manage DTI. I begin by educating them on their DTI and why it’s important to keep it low, specifically when applying for a large loan such as a mortgage, or HELOC. 

I often advise adjustments, such as decreasing debt (obviously!), increasing income if possible (asking for a raise or taking on a side gig), cutting extra spending wherever possible to apply to paying off current debt, and avoiding adding new debts to their plate.

Erin Kinkade, CFP®

At least 15% equity in your home

Many lenders require at least 15% equity in your home to be eligible for a home equity loan or HELOC, which is expressed as an 85% loan-to-value ratio (LTV). 

This is to help ensure that you don’t overborrow and end up underwater on your mortgage or owing more than what your home is worth. If you’re underwater on your mortgage, it can be a risk for your lender and for you if you want to sell your home. 

Equity requirements vary by lender. Some may be willing to accept an LTV of 100%, but others cap the requirement at 70%. In general, the more equity you have in your home when you apply for a home equity loan or HELOC, the better your chances of getting approved for the amount you’re seeking. 

Lender	Product	Max. LTV
Figure	HELOC	95%
Aven	HELOC	89%
Bethpage FCU	HELOC	85%
Spring EQ	HELOC & home equity loan	90%
Guaranteed Rate	Home equity loan	100%
Unison	HELOC	85%
PenFed	Home equity loan	70%

Read More

Can You Sell Your House With a Home Equity Loan or HELOC?; Can I Take Out a Home Equity Loan or HELOC on a Second Home? 

Key takeaways about home equity loan and HELOC requirements 

Home equity loans and HELOCs are unique, different lending products that both let you borrow against your hard-earned home equity. The borrowing criteria for both products vary by lender, as illustrated above. 

However, you can use the following criteria as a guideline. Just be sure to confirm the requirements with your lender before applying. This can help you understand your likelihood of approval. 

Criterion	Requirement
Credit score	620 or higher
Income	Stable
Equity	At least 15%
DTI	50% or lower

Read More

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