How Much Can I Borrow on a HELOC?

If you’re a homeowner, you may have big dreams for your property but not enough cash on hand to make them a reality. Maybe you want to renovate your kitchen, build a backyard oasis, or even consolidate high-interest debt. 

A home equity line of credit (HELOC) can help you access funds to bring your vision to life or to achieve your financial goals. Usually, you can borrow up to 85% of your home’s value, minus what you still owe on your mortgage. But it’s not always that cut and dry. Here’s a closer look.

Home equity and how much can you get in a HELOC

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Home equity is the part of your home’s value that belongs to you, not your lender. It’s the difference between your home’s current market value and your remaining mortgage balance. 

A simple formula for calculating your home equity is to subtract the total of all financing against your home (including mortgages, HELOCs, and home equity loans) from your home’s current market value.

Home equity = Home’s value – Home’s financing

If your home’s value is $300,000 and your home’s financing totals $255,000, you have $45,000 in equity. This means you own 15% of your home’s value (255,000/300,000).

Your lender will likely order an appraisal to determine your home’s value. As you repay your mortgage and your home appreciates, your home equity grows. Once you’ve fully repaid all loans secured by your home, your home equity will be 100%.

A home equity line of credit (HELOC) allows you to take out some of your home’s equity and repay it in the future. You can use this money for almost anything, including home renovations, debt consolidation, college costs, business expenses, medical bills, or other financial goals.

The amount you can borrow with a HELOC depends on your available home equity and your lender’s loan-to-value ratio (LTV) requirements.

Our expert recommends how much to borrow against your equity

Rand Millwood

CFP®

You would rarely want to take out all the equity in your home because if values were to decline and you were in a position where you had to sell your home due to a job loss or job move, the selling price might not cover the total amount you owe on your mortgage and HELOC. In this case, you would need to come up with the difference—what you owe beyond what you can sell the house for—from other sources, such as savings, investments, or other assets. Typically, you want to leave yourself with a 5% to 10% equity buffer after using your HELOC. If home values continue to increase, you can always either take out a new larger HELOC or ask for an increase of your current one

The role of loan-to-value

Lenders use loan-to-value (LTV) ratios to determine how much you can borrow with a HELOC. The LTV ratio compares the total amount of your mortgage and HELOC to your home’s value.

Most lenders require you to maintain at least 15% equity in your home after taking out a HELOC, which means the maximum LTV ratio is typically 85%.

However, LTV requirements can vary depending on the type of property you own. For instance, a lender might allow an 85% LTV for a primary residence but cap the LTV at 75% for an investment property to account for the higher risk associated with non-owner-occupied homes.

In some cases, lenders may offer higher LTV ratios up to 90% or 100% if you have excellent credit and a strong financial profile. For example, NASA Federal Credit Union provides HELOCs with LTVs up to 95% for loan amounts up to $150,000. Local lenders like Seattle Credit Union have maximum LTVs of 100%.

Example

For example, let’s assume your home’s value is $300,000. You have a $240,000 mortgage and a $15,000 HELOC. Your home’s equity, LTV, and CLTV for this example are shown below.

Detail	Amount
Home value	$300,000
Mortgage balance	$240,000
Home equity line of credit (HELOC)	$15,000
Total home financing	$255,000
Home equity ($)	$45,000
Home equity (%)	15%
Loan-to-value (mortgage only)	80%
Combined loan-to-value	85%

Here are how these different values are calculated in the example:

1. Mortgage balance + HELOC = total home financing, so $240,000 + $15,000 = $255,000
2. Home value – total home financing = home equity, so $300,000 – $255,000 = $45,000
3. Home equity / home value = home equity %, so $45,000 / $300,000 = 0.15, or 15%
4. Mortgage balance / home value = LTV, so $240,000 / $300,000 = 0.80, or 80%
5. Total home financing / home value = CLTV, so $255,000 / $300,000 = 0.85, or 85%

Ask the expert: What is an acceptable LTV?

Rand Millwood

CFP®

You typically want an LTV of 80%. This is the usual cutoff to avoid private mortgage insurance, which covers the bank in the event of a home value decline. This is an additional insurance payment added to your monthly mortgage bill and can run into hundreds of dollars depending on mortgage size and how little equity you have. If you were forced to sell during a time of home value decline, you may not get enough from the sale of your home to pay off your entire loan.

Specific lenders’ HELOC amounts

Figure, Bethpage, and LendingTree are some of the best HELOC lenders. Here’s a look at the specific LTV requirements and borrowing limits offered at each:

Lender	HELOC amounts	Max. LTV
Figure	$15,000 – $400,000	85%
Aven	$5,000 – $400,000	89%
Bethpage	Up to $1 million	75% for the best rate
LendingTree	$10,000 – $2 million	Varies by lender, up to 95%

What other factors affect how much HELOC you can get?

Your home’s equity isn’t the only thing that will influence how much you can borrow on a HELOC. These factors also come into play: 

• Credit score: A good credit score is essential to get a larger HELOC or one with a higher CLTV. Lenders use your credit score to assess your creditworthiness and the risk associated with your loan. Besides a larger loan and higher CLTV, a higher credit score often results in a better interest rate.
• Borrower’s income: Your income is a key factor in how much you can borrow. Lenders want to know that you have a stable source of income. You’ll need to provide your lender with income and job history details, including historical tax returns and pay stubs. 
• Debt-to-income (DTI) ratio: Lenders want to ensure you can comfortably repay the HELOC and your existing debts. The DTI is a measure of how easily your debts can be repaid. A lower DTI is generally better, with lenders commonly capping DTIs at 43%.
• Interest rates: If interest rates are high, you might be approved for a smaller HELOC because the monthly payments will be higher (and vice versa). The lower your DTI, the easier it will be to get approved for a HELOC in a rising interest rate environment. 
• Loan purpose: Some lenders may be more lenient if you plan to use the funds for home improvements because it can enhance the property’s value.
• Property location: Lenders may be more willing to offer larger HELOCs in areas with strong property values and low foreclosure rates. Conversely, you may be approved for a smaller HELOC in areas with declining property values or higher economic risks.

How to increase your chances of HELOC approval

There are several steps you can take to increase your chances of getting approved for a larger HELOC with better loan terms: 

• Improve your credit score: You can increase your score by paying your bills on time each month and paying down high credit card balances. You can also review your credit reports for errors. 
• Lower your DTI ratio: A lower DTI means you have less debt relative to your income. You can lower your DTI by paying down existing debts, increasing your income, or a combination of both. 
• Increase your home’s value: Making smaller upgrades around your house before your appraisal can increase its value and, in return, your borrowing potential. This could include landscaping your yard for curb appeal, making energy-efficient upgrades, and replacing old carpets.
• Shop around: Some lenders are more conservative in their approval criteria than others. So if one lender doesn’t approve you, another might.

When do you find out how much you can get in a HELOC?

You’ll tell a lender what size HELOC you want when you submit your application. Lenders will run a soft credit check and decide whether you prequalify based on your credit score, LTV, and DTI. If approved, you’ll receive a loan offer with details about the HELOC size you’re approved for, along with rates and fees.

If you’d like to proceed, the lender will pull a hard credit check, request additional documents to verify your income, and order a home appraisal. Your actual HELOC amount may be lower if your home’s appraised value winds up being lower than the estimate stated in your loan application.

HELOCs have two phases: 

• The draw period (five to 10 years): During the draw period, you borrow money and make interest-only payments. 
• The repayment period (10 to 20 years): In the repayment period, you’ll make principal-plus-interest payments to pay off the remaining balance

Some HELOCs only require you to draw the amount of money you need—even if it’s less than the full HELOC amount. So if you’re approved for a $30,000 HELOC but only need $15,000 to upgrade your kitchen, you draw the $15,000 and only pay interest on that amount. You’ll only pay interest on the $15,000 you actually borrow.

Other HELOCs require you to draw the full HELOC amount upon origination. In that way, it’s like a home equity loan in which you pay interest on the full amount. But as you repay it, you have the opportunity to redraw throughout your draw period.

Alternatives to a HELOC

If you can’t get approved for a HELOC or the loan amount is too small, you have several options to consider:

Home equity loan

A home equity loan is similar to a HELOC in that it allows you to borrow against your home’s equity. But instead of a revolving line of credit, you receive all the cash upfront and make fixed monthly payments over time (similar to a mortgage).

Pros

• Fixed interest rates and monthly payments

• Can potentially deduct interest if used for home improvements

• Lower APRs than other HELOC alternatives (like credit cards and personal loans)

Cons

• The equity requirement is similar to a HELOC

• Your home still backs the loan and serves as collateral

• You’ll pay interest on the full loan amount — even if you don’t use it

Cash-out refinance

A cash-out refinance is where you trade your current mortgage in for a larger loan and take the difference in cash. This can be a good option if current mortgage rates are lower than what you’re paying now.

Pros

• You have one monthly payment instead of multiple 

• Can potentially deduct interest if used for certain home improvements

Cons

• Fees and interest rates may be higher 

• Your mortgage term starts over

• Your home still backs the loan and serves as collateral

Personal loan

Most personal loans are unsecured and don’t require collateral. If you have good credit, you may be able to get personal loans for nearly any purpose. 

Pros

• Taking out a loan doesn’t put your home at risk

• Often same-day or next-day approvals

• Fixed interest rates and set repayment terms

Cons

• Typically have higher interest rates than home equity options

• Interest isn’t tax-deductible

• Loan amounts may be lower than home equity options

401(k) loan

You could also consider borrowing against your retirement account using a 401(k) loan. However, before doing this, it’s best to consult an expert about potential tax consequences and their impact on your long-term retirement savings.

Pros

• No credit check or income verification

• Interest rate payments go back into your retirement account

Cons

• Limited to $50,000 or 50% of your vested balance

• Puts your retirement savings at risk

• Potential tax penalties if you can’t repay the loan

Our expert’s take: When to consider an alternative versus waiting until you qualify for a HELOC

Rand Millwood

CFP®

The better bet would be to wait until you have paid down more of your mortgage or home values increased. If you have sufficient cash flow, a personal loan is likely better because it doesn’t have an impact on your retirement. But if cash flow is tight, a loan from your 401(k) may be better: Interest rates tend to be lower, and the funds go back into your retirement account.

FAQ

How do economic conditions affect HELOC amounts?

The economy can impact your HELOC in a couple of ways. When interest rates go up, HELOC rates usually do too. As a result, you may get approved for a smaller loan amount because your potential monthly payments are higher. 

Conversely, if home values drop, you might not have as much equity to borrow against, which could lower your HELOC limit or make it tougher to get approved.

What are typical closing costs for a HELOC?

Unless you find a no-closing cost HELOC, you can expect to pay several fees. This includes an application fee for applying, closing costs for account opening, appraisals, and title searches, an inactivity fee for dormant accounts, an annual fee for maintenance, a cancellation fee if you close your HELOC early, and a conversion fee if you’d like a fixed interest rate.

How often do HELOC interest rates change?

Most HELOCs have adjustable rates that can change every month or every quarter as the index they’re tied to changes. So if the index goes up, your HELOC rate will too. If the index goes down, so will your rate. Figure is one of the only lenders with 100% fixed-rate HELOCs. Other lenders may give you the option to lock in all or part of your balance. 

Can I convert my HELOC to a fixed-rate loan?

Some lenders will let you switch a chunk or all of your HELOC balance to a fixed-rate loan. This is called a “fixed-rate conversion option” or “fixed-rate lock.” It can help make your monthly payments more predictable, which can be nice if you think interest rates are going to keep going up.

What are the tax implications of using a HELOC?

You might be able to write off the interest you pay on your HELOC on your taxes, but only if you use the money to make “substantial improvements” to the house that’s backing the loan. Talking to a tax professional is the best way to know if your HELOC interest is tax-deductible based on current tax rules.

Can you increase your HELOC amount?

Yes, you can request an increase in your HELOC amount. However, approval is subject to the lender’s discretion and reassessing your creditworthiness and home’s value. Plus, you may need to pay for a new appraisal and documentation fees, so be aware of these potential costs. 

What happens if I have a HELOC and home values in my area change drastically?

If you have a HELOC and home values in your area decline, it can affect the amount of equity available in your home. This can impact your ability to borrow against it or lead to changes in your credit line. Your lender might cap your HELOC at your current balance and not allow additional advances.