How Much Equity Can I Borrow With a HELOC?

What “equity” means for a HELOC

Your equity is the difference between what your home is worth today and what you owe on it. If you have a first mortgage and any other loan secured by the home (another home equity loan or line, for example), all of those balances count against the value.

A home equity line of credit (HELOC) lets you borrow against part of that equity. The Consumer Financial Protection Bureau (CFPB) describes it as an “open-end” line of credit that lets you borrow repeatedly against your home equity, rather than receiving one lump sum.

How lenders set the maximum line

According to the CFPB, lenders typically let you borrow up to a specified percentage of your home’s appraised value, minus what you still owe on your mortgage. Lenders often express that percentage as a combined loan-to-value (CLTV) limit: the total of all loans on the home, including the new line, divided by the home’s value.

The CFPB also notes that lenders typically require you to keep at least 10% to 20% of your home’s value as equity. Put another way, that would mean total borrowing of roughly 80% to 90% of the home’s value. That’s our arithmetic, not a CFPB figure, and each lender sets its own limit, which can be lower depending on the property and your profile.

You can run your own rough numbers with the equity estimator on our HELOC & home equity page. Treat any estimate as a starting point; the appraisal and underwriting decide the real figure.

Other factors that change the number

Available equity is a ceiling, not an answer. Lenders generally also review:

• The appraisal. The lender’s valuation — not an online estimate — sets the value used in the math.
• Credit history. Credit affects eligibility and the terms a lender is willing to offer.
• Income and existing debts. Lenders consider whether the payments on the line, plus your other obligations, are affordable.
• How the property is used and what it is. A primary residence, second home or rental, and the property type, can each be treated differently.
• Your state and the lender’s program. Availability and limits vary by state and lender.

How a HELOC works once it’s open

The CFPB explains that a HELOC typically has a draw period, when you can borrow up to your limit (some plans allow interest-only payments during this time), followed by a repayment period. When the repayment period begins, payments are often higher, and some plans require the remaining balance to be paid in one lump sum — a balloon payment.

Most HELOCs have variable interest rates made up of an index plus a margin, so your payment can change even if you don’t borrow more. Some plans allow you to convert part of the balance to a fixed rate.

What this doesn’t tell you

• The CLTV range above is a general description from the CFPB, not a promise that any lender will lend to that level for your home.
• HELOCs “generally permit the lender to freeze or reduce your credit line” if your home’s value falls or your financial situation changes, according to the CFPB — so the full limit may not always be available.
• Your home is collateral. If you can’t repay as agreed, you could lose it.
• Fees vary. The CFPB lists possible appraisal, application and closing costs, plus annual, inactivity or early-termination fees on some plans. Compare the full cost, not just the line amount.

If you’re weighing a line of credit against replacing your first mortgage, see HELOC vs. cash-out refinance.