How Much Equity Do You Need for a HELOC?

A home equity line of credit (HELOC) is a flexible financing option for eligible borrowers with sufficient home equity. You can get a credit line up to a set amount your lender determines and then borrow against it as needed for home projects, consolidating high-interest debt, college costs, or another big-ticket expense. 

While HELOCs offer flexibility, they aren’t necessarily the right option for everyone. Like other types of home loans, you’ll need to meet certain eligibility requirements to qualify, including having adequate equity in your home. 

If you are wondering how much equity you need for a HELOC, along with those other qualifying requirements, here’s what to know. 

How much home equity do you need for a HELOC?

In general, lenders require that you have at least 15% to 20% equity in your home to qualify for a HELOC, but some may require less. 

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%.

Lenders might use an automated valuation model (AVM) or require a formal home appraisal to help determine your total equity 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. 

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. 

Know your loan-to-value

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%
Spring EQ	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 I build my home 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.

What other factors affect HELOC approval?

Besides your available equity, your lender will also consider other factors when determining if you’re eligible for a HELOC. Borrower eligibility criteria vary by lender, but some things all lenders will likely look at include:

• Credit score: Lenders may require that you have good-to-excellent credit to qualify for a HELOC. 
• Type of property: The type of home you own—single-family, townhouse, or condo—could also be a factor.
• The property’s use: For instance, certain lenders may only offer HELOCs for primary residences and second homes, not investment properties.
• Debt to income: Your lender will also look at your debt-to-income ratio, or DTI, during the loan decision process. Your DTI represents your total debt relative to your income. The lower your DTI, the better your chances of approval. 
• Borrower’s income: Certain lenders may have specific income requirements, so ask about criteria before applying. 
• Location of the home: Your location may also impact your chances of getting approved for a HELOC. For instance, if home values in your area have declined recently, you may not have sufficient equity. 

Alternatives to a HELOC

Other borrowing alternatives may be available if you don’t have sufficient equity in your home to get approved for a HELOC or home equity loan, including the following:

• Cash-out refinance: Doing a cash-out refinance may be another way to borrow against your home’s existing equity. With a cash-out refinance, you refinance your existing mortgage with a larger one and receive the difference as a lump-sum amount at closing. You’ll generally pay closing costs with a cash-out refinance, and your interest rate may be higher than you’d get with a HELOC. 
• Personal loan: Many banking institutions offer loans, often ranging from $500 to $50,000. If you don’t have sufficient home equity, a personal loan could be a useful alternative if you need to cover a large cost. However, these loans may come with higher interest rates than HELOCs. 
• Credit card: Applying for a new credit card with a 0% introductory APR could also help you cover a large cost. Many intro APR cards offer a 0% rate for a year or more, so you can pay off your balance over time. Just ensure you pay it off before the intro period expires, or you’ll pay a high interest rate on your remaining balance.

FAQ

What is the minimum equity for a HELOC?

You’ll generally need 15% to 20% equity in your home to qualify for a HELOC, but requirements vary by lender. Some lenders might be willing to approve you for a HELOC with less equity. 

Are home equity and LTV the same thing?

Home equity and LTV are not the same thing. Your home equity is the current value of your home minus any outstanding loans, such as a mortgage or existing home equity loan. 

If your home is appraised at $400,000, and your outstanding mortgage balance is $215,000, you have $185,000 in total equity. It can also be calculated as a percentage by dividing your total equity by your home’s value, so in this case, you’d have 46% in your home. 

To calculate your LTV, your lender will divide your current mortgage balance by the appraised value of your property, so in this case, your LTV would be .54 or 54%.

Can I borrow 100% of my equity?

Generally, lenders only let you borrow 80% to 85% of your total home equity, but some may let you borrow up to 95% or 100%. It may be more difficult to find a lender that offers a higher borrowing amount, though.