HELOC and Home Equity Loan Requirements: What You Need to Qualify
As a homeowner, it may feel like most of your net worth is tied up in your house. But a home equity line of credit (HELOC) or home equity loan can help you free up some of that cash without selling your house.
There are three guidelines that most lenders follow for both HELOCs and home equity loans:
- Debt-to-income ratio: 43% or less
- Credit score: 620 or higher
- Home equity: 15% or more
HELOC and home equity loan requirements are typically the same, and are often more strict than first mortgage requirements. We’ll walk you through what you’d need to qualify and how to decide whether tapping equity with a second mortgage is right for you.
HELOC and home equity loan requirements
The requirements for a HELOC or home equity loan tend to be stricter than those for a typical first mortgage. That’s because they’re second mortgages, which makes them slightly riskier for lenders.
The exact rules will vary by lender, but there are three general guidelines that most lenders follow:
1. Debt-to-income ratio: At most 43%
To qualify for a HELOC or home equity loan, your debt-to-income (DTI) ratio will typically need to be below 43% once your potential new loan payment is factored in.
Your DTI ratio measures your monthly debt load compared to your monthly income. To calculate your DTI ratio, add up the monthly payments on the loans you have, then divide them by your monthly income before taxes.
For example, let’s say that each month you have a $400 student loan payment, a $300 car payment and an $1,800 mortgage payment. That means you have a $2,500 monthly debt load. Now let’s say you earn $6,250 per month. Your DTI ratio stands at 40%. If you then take out a home equity loan that comes with $160 monthly payments, your DTI will hit nearly 43%.
How to get there: You can lower your DTI ratio by paying off debt or increasing your income. Remember: Your income needs to be verifiable with documentation like W-2s or pay stubs.
2. Credit score: At least 620
In many cases, lenders will set a minimum 620 credit score to qualify you for a HELOC or home equity loan — though the limit can be as high as 660 or 680 in some cases. Still, there are some options for a HELOC or home equity loan with bad credit.
How to get there: The biggest factor in your credit score is your payment history. So if you need to boost your credit score to qualify for a home equity loan or HELOC, focus on making your payments on time, every time.
You can find out your credit score by contacting any of the three major credit bureaus. It’s free to get your score from Experian, Equifax and TransUnion. However, it can be easier to use a credit-monitoring service, like LendingTree Spring, to access your credit score for free.
3. Home equity: At least 15%
You need to have a minimum amount of equity — at least 15% — to qualify for a HELOC or home equity loan. Lenders often express this as a maximum 85% loan-to-value (LTV) ratio. The LTV ratio measures your outstanding mortgage balance against your home’s market value. When you add your first mortgage and new home equity loan together, this creates your Combined LTV (CLTV), which lenders cap at 80% to 85%.
Ultimately, the more equity you have, the more money you can borrow.
You can technically take out an equity-tapping loan as soon as you reach 15% equity, so homeowners who make a hefty down payment could qualify within the first year. However, for many it can take five to 10 years to build up 15% equity.
How to get there: You can accelerate the process of building equity by paying off your mortgage more quickly than required, making biweekly instead of monthly payments or refinancing to a shorter loan term.
Loans for borrowers with less than 15% equity (which would be an LTV ratio above 85%) are sometimes called high-LTV loans. They usually come with a higher interest rate and tougher credit and income requirements.
Ready to find how much you could borrow? Use our home equity loan and HELOC calculator today.
How equity-tapping loans work
The amount you’re able to borrow with a home equity loan or HELOC is generally set by the amount of equity in your home. You can usually borrow up to 85% of your home’s value, minus your first mortgage balance.
For example, let’s say your home is worth $300,000 and you still owe $100,000 on your first mortgage.
- Calculate 85% of $300,000, which is $255,000.
- Subtract your $100,000 balance from $255,000, and you end up with $155,000.
- So, you can likely borrow up to $155,000 with a home equity loan.
This is common to both loan types, but there are a few differences in how HELOCs and home equity loans work:
| How does a home equity loan work? | How does a HELOC work? |
|---|---|
| How you get the money: You’ll receive the money in a single, lump sum. | How you get the money: You’ll receive a card you can swipe to access HELOC funds. You can use and reuse your line of credit as many times as you like during the draw period. |
| How you make payments: You’ll immediately begin paying back the money with a monthly payment at a fixed interest rate. | How you make payments: You’ll have a grace period of several years (the draw period) during which you can usually make low, interest-only payments. However, once the draw period ends, you’ll begin paying back the money with monthly payments at a variable interest rate. |
If you fail to make the payments on your home equity loan or HELOC, you could lose your home to foreclosure.
HELOC and home equity loan rates: Market trends
Home equity loan rates are typically higher than what you’ll find on either a HELOC, cash-out refinance or 30-year fixed-rate mortgage.
Interest rates have fallen by more than half a percentage point in the last 12 months, and our expert’s mortgage rate predictions don’t foresee a significant rise over the remainder of 2025.
- HELOC rates are tied directly to the prime rate, which means that they typically go up or down in lock step with the broader rate environment
- Home equity loan rates aren’t tied directly to the prime rate, but they do tend to follow in the same general direction when the market moves up or down.
See more about current home equity loan and HELOC rates.
The best place to get a home equity loan or HELOC
The best home equity loan is one with payments that fit in your budget, a competitive interest rate and a lender who’ll treat you right — but finding that loan isn’t always easy.
- Comparison shopping with three to five lenders can save you tens of thousands of dollars in the long run, according to LendingTree data.
- You should also consider whether potential lenders will provide the experience you need — like the ability to exchange texts with customer service, submit an online application or access a network of brick-and-mortar locations.
Unsure where to start? Review our lists of the best home equity loan lenders and best HELOC lenders of 2025.
Should I get a home equity loan or HELOC?
Pros
- Lower costs: You’ll spend less to borrow the money compared to credit cards or personal loans.
- Fixed payments: You’ll have the option of fixed monthly payments for the entire loan term, if you choose a home equity loan.
- Reusability: You can spend from and repay your credit line as many times as you’d like during the draw period, if you choose a HELOC.
- Tax benefits: Your loan interest may be tax-deductible.
- Flexibility: You’re not restricted in how you use the money.
Cons
- Closing costs: You’ll pay substantial closing costs ranging from 2% to 5% of your loan amount.
- Loss of equity: You’ll reduce your available equity while raising your total debt.
- Foreclosure: You risk foreclosure if you default.
- Tough to qualify: You might have a tougher time qualifying for a home equity loan or HELOC than your other loan options.
- Payment variability: You’ll have a variable interest rate if you choose a HELOC, so your payments are likely to change over time.
You should consider getting a home equity loan or HELOC if:
- You want to make home improvements
Home equity loans and HELOCs are commonly used to pay for costly home improvements like renovations and additions. Plus, if you use the loan to fix up your home, the interest you pay is usually tax-deductible.
- You want to pay off high-interest debt
Since home equity loans and HELOCs are secured by your home, they usually have lower interest rates than you’ll find on unsecured loans, like credit cards or personal loans. You may be able to consolidate high-interest debt with your new loan, leaving you with a lower interest rate and lower monthly payment.
- You can afford your mortgage and other monthly expenses
Don’t take out a second mortgage if it’ll break your budget. An equity-tapping loan adds another mandatory monthly payment to your finances, in addition to your existing mortgage payment and any other loan payments you’re responsible for.
A home equity loan or HELOC may not be a good idea if:
- You don’t know exactly what you want to achieve with the funds
Using a home equity loan or HELOC as a financial cushion or catch-all for unexpected expenses is risky. Not only are you putting your home at risk, but the interest you pay likely won’t be tax-deductible.
- You live in an area where home values are falling
Since these loans are secured by your home, they reduce your available home equity. If your home’s value falls, you could end up owing more on your mortgage than the home is worth (also known as being “underwater on your mortgage” or having negative equity).
Trying to choose between a HELOC and home equity loan? Check out our guide to choosing your best equity-tapping option.
Alternatives to home equity loans
There are many options you can consider besides a home equity loan:
Cash-out refinance
A cash-out refinance involves taking out a new mortgage that pays off and replaces your current mortgage, but with a higher amount than you currently owe. The amount over and above what you owe will come to you as cash. You’ll also pay typical mortgage closing costs.
✓ Advantage: Your interest rate is likely to be lower than what you’d get with a home equity loan or HELOC, since a cash-out refi is a primary mortgage and not a second one.
See current refinance rates and top lenders today.
Reverse mortgage
With a typical mortgage, you make payments each month to repay the loan. But with a reverse mortgage, a lender pays you in a lump sum or on a monthly basis (or through a credit line, in some cases) based on your available home equity. The balance isn’t due until you leave the home or die.
Reverse mortgages are exclusive to seniors age 62 or older and are often used to supplement retirement income. However, paying off a reverse mortgage often involves selling the home.
✓ Advantage: You won’t have a monthly payment and can remain in your home.
Personal loan
Personal loans are a type of installment loan, usually with a fixed interest rate. As with a home equity loan, you’ll receive your personal loan proceeds as a lump sum. Personal loans are generally unsecured, meaning there’s no foreclosure risk — but you’ll likely pay a higher interest rate, and you can be sued if you default on the loan.
✓ Advantage: You aren’t putting your home at risk.
0% APR credit card
If you’re looking for a relatively short-term loan, a 0% APR credit card may be a good option. These credit cards don’t charge any interest for an introductory period, but the interest rate jumps back to a normal rate after that time. Credit limits will likely be lower than you’d be able to borrow with a home equity loan, though, and interest rates after the introductory period can be steep.
✓ Advantage: You can avoid paying interest if you pay off your balance before the introductory period ends.
Read more about our picks for the best 0% APR credit cards.
CD-secured loan
If you have a significant sum invested in certificates of deposit (CDs) and hit an unexpected financial emergency, you may wish you could access those funds without paying early withdrawal fees. CD-secured loans are one way to access a lump sum without actually pulling your money out of the CD. You can usually get a loan for the full amount you’ve invested without paying a high interest rate.
✓ Advantage: You’ll have a plan for emergencies that doesn’t require taking money out of your CDs early.
Balance transfer credit card
If you have strong credit but are carrying high-interest debt, a balance transfer credit card can consolidate your debt and give you time (often as long as 21 months) to pay down the principal balance without worrying about interest. You’ll usually have to pay a balance transfer fee — but if you can pay down your debt fast enough to match your interest-free introductory period, a balance transfer credit card could save you much of the pain of your high-interest debt.
✓ Advantage: You can buy yourself enough time to significantly reduce high-interest debt without the added interest expense.
Read more about our picks for the best balance transfer credit cards.
Credit counseling
If you’re struggling to stay on top of your debts and expenses, a credit counselor can help. Beyond simply offering advice, credit counselors can assist you as you create and execute a debt management plan. During this process, the counselor may help you get discounts from your creditors on interest rates and fees, or lower your monthly payments.
✓ Advantage: You’ll have help strategically attacking your debt.
Frequently asked questions
Every lender operates at its own speed, but the process to underwrite a home equity loan or HELOC is similar to a standard mortgage. As such, you can expect it to take about the same amount of time. A typical time to close on a home equity loan or HELOC is between two to eight weeks, though the fastest HELOC lenders can get it done in five to seven days.
How much you can borrow will depend on how much home equity you have, your credit score and other factors. A home equity loan calculator can help you estimate how much cash you’re likely to have access to through a home equity loan.
To qualify for a home equity loan or HELOC, you’ll typically need to document your ability to repay the loan — this includes earning enough income to make your monthly payments. If you don’t have a job, you’ll need to show that you have enough income from other sources to make your payments.
A $50,000 home equity loan puts cash in your bank account in one lump sum, and requires you to make regular payments based on that entire amount. A $50,000 credit line, on the other hand, works a lot like a credit card. You can access up to $50,000 and only pay interest on the money you use.
Home equity loans are usually offered with loan terms that range from five to 30 years, but the loan term that’s right for you will largely be determined by the monthly payments. If you’re taking out a large amount, you may be able to afford a 30-year loan but be in over your head with a five- or 10-year loan.
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