How Much Equity Do You Need for a HELOC?

If you’re considering a home equity line of credit (HELOC), having sufficient equity is key. Typically, HELOC lenders require you to have 15% to 20% equity to qualify, though some may accept less. This guide explains how to calculate your home’s equity, lender requirements, and options if you don’t yet meet the threshold.

How much home equity do you need for a HELOC?

Lenders generally require that you have at least 15% to 20% equity in your home to qualify for a HELOC because it helps reduce the lender’s risk. This threshold ensures there’s a sufficient buffer if your home’s value decreases.

In other words, the more equity you have, the lower the chance that a drop in home prices or payment issues would result in the lender losing money if it needed to recoup the loan.

However, some lenders may accept less equity if other factors lower their risk. These factors can include strong credit scores, stable income, or a low overall debt burden, all of which indicate to the lender that you’re likely to repay responsibly.

How to calculate your current equity

Your total home equity is calculated as follows:

Home equity = current appraised value of your property – (your mortgage balance + the balance of any other home equity loans or credit lines you have)

For instance:

• Your home is currently valued at $350,000
• Your total loan balance is $150,000
• You’d have $200,000 in home equity 

To find your equity percentage, you would use this formula:

Home equity percentage = Total equity / home’s value x 100

Using our example above, your total equity would be 57%.

Many lenders use an automated valuation model (AVM) or require a formal home appraisal to help determine your home’s value before you can borrow. But you can get a general idea of your equity by looking at your home values on sites like Realtor.com and Zillow. Just be aware that your lender’s appraisal may reveal a different number. 

It’s important to remember your equity percentage may increase as you pay down your mortgage over time, but it can also fluctuate depending on market conditions.

For example, if the housing market is down and your home is appraised for less than it may have been a few years ago, your overall equity would likely decrease. 

Your equity versus loan-to-value ratio

Lenders will look at your total equity, but that’s not the only thing they consider when you apply for a HELOC. They also look at your loan-to-value ratio (LTV) and combined loan-to-value ratio (CLTV) to determine your eligibility. 

Your LTV is expressed as a percentage and equals your outstanding loan balance divided by your home’s current appraised value. Let’s refer to our example above to calculate LTV:

150,000 / 350,000 = .43 or 43%

Your LTV is related to your home equity percentage. In our example above, your total home equity is 57%. If we subtract that percentage from 100%, we get 43%—your LTV percentage.

CLTV is also expressed as a percentage, but the formula for calculating it is slightly more complicated. Instead of considering your existing mortgage balance by itself, your lender will also factor in how much you’d like to borrow. So if you’re seeking a $30,000 HELOC, your CLTV would be calculated as follows.

(150,000 + 30,000) / 350,000 = .51 or 51% 

Many lenders require borrowers to have a CLTV of less than 80% or 85% to qualify for a HELOC, though requirements vary by lender. Here’s a look at CLTV requirements at some popular banks:

Lender	CLTV required
Bank of America	85%
Bethpage	75%
Figure	95%
Hitch	95%
Lower	95%
Truist	85%

Can you get a HELOC with less than 20% equity?

Lenders often require at least 15% or 20% in home equity to qualify for a HELOC, but certain lenders may require less, including some we’ve mentioned above. For instance, Figure, Hitch, Lower, and Spring EQ may be willing to work with you if your CLTV is 95%. 

So let’s say your home is valued at $200,000, and you owe $180,000 on your mortgage. In this case, you’d have 10% equity in your home and an LTV of 90%. You could potentially get a HELOC of $10,000, bringing your total CLTV to 95%. 

Can you get a HELOC with no equity?

In certain cases, you might have no equity or negative equity in your home. This may happen if the real estate market has declined since you purchased your home, and you owe more on your mortgage than your home’s current value. 

Your chances of getting approved for a HELOC with no equity or negative equity are slim. If this situation applies to you, you may be better off increasing your total equity before applying for a HELOC or considering an alternative financing option to cover your expenses. 

How can you build equity to meet lender requirements?

If you’re seeking a HELOC but don’t have sufficient equity, you can take some steps to build your home equity to meet lender requirements:

• Increase your monthly principal payments toward your mortgage. You might make bi-weekly payments or make extra payments when possible. These strategies are generally the best options to help reduce your principal balance and boost your equity. 
• Refinance to a shorter-term mortgage. Many homeowners opt to refinance from a 30-year to a 15-year loan, which means you’ll be putting more toward the principal each month. Remember, however, that your monthly payments will generally be higher. Refinancing may not make sense if you can’t afford higher payments or if your interest rate will increase considerably.