A home equity line of credit (HELOC) could help fund that new, energy-efficient water heater, repair your water-damaged basement, or simply pay off your current credit card debt. With a HELOC, homeowners borrow against their home’s appraised value and equity to access a revolving credit account.
Homeowners can gain access to significant chunks of cash with a HELOC—but there are limits to be aware of, to avoid being surprised by them when you apply. Here are the ins and outs of a HELOC and how to estimate how big a HELOC you might get.
- Possible HELOC minimums and maximums depend on the bank or credit union.
- How big a HELOC you could get relies on your credit, bank limits, your home’s value, and other factors.
- When comparing HELOC lenders, don’t just look at the amount—also consider interest rates, draw periods, and other elements of this type of loan.
How Does a HELOC Work?
A HELOC works much like a credit card. Your home is used as collateral, or the item that secures the loan if you don’t pay. With a HELOC, the bank approves a revolving line of credit of a certain amount. You can borrow from that credit line as you wish, and must repay it with interest.
The money becomes available again when you repay the amount taken out, much like a credit card. The HELOC’s line of credit is only available for a limited time, which is called the “draw period.” Then, the HELOC may enter a repayment period.
While each HELOC may work a little differently, here’s a simple example: After applying for a HELOC, you’re approved for a $50,000 line of credit. You borrow $10,000 to repair your roof. Now, only $40,000 is available on your credit line. However, you pay off the $10,000 through aggressive debt repayments, even though you’re still in the draw period. Now the full $50,000 is available to you again.
Not paying back your HELOC is different from not paying down your credit card bill. If you don’t repay your HELOC, you could lose your home because of the way it’s secured.
Lender HELOC Limits
HELOC dollar limits vary by lender, your home’s equity, credit history, and current debt payments. The following are a few examples as of May 2022.
|U.S. Bank||$15,000||$750,000; generally
$1 million in California
|Navy Federal Credit Union||$10,000||$500,000|
|Eastern Bank||$10,000||$2 million|
|PenFed Credit Union||$25,000||$500,000|
|Trustmark Bank||No minimum||$250,000|
As you can see, around $10,000 to $25,000 is a normal lower limit, while higher lender HELOC limits can range from $250,000 to $2 million.
How Big a HELOC Can You Get?
While $2 million might sound nice, you won’t necessarily get such a generous line of credit. The amount you’ll qualify for depends on the particulars of your home, your equity in it, your current debts, the bank’s approach to HELOCs, and your credit history.
First, the lender performs an appraisal of your home’s current value. The lender then extends a line of credit for a limited amount of your home’s assessed value after calculating how much you still owe on the mortgage. The lender doesn’t offer an amount that’s equal to all your home’s equity.
In certain circumstances, a lender can freeze your HELOC and the credit available if the value of your home has declined.
Here’s how to do the calculations. Suppose the bank said your house is worth $700,000. Homeowners generally can borrow up to 80% to 90% of the home’s value after deducting the amount owed. Based on that information, below is an example of how to estimate the amount of money you could get from a HELOC from a particular lender.
|Home’s appraised value||$700,000|
|Lender’s HELOC loan-to-value (LTV) ratio||80%|
|Multiply LTV by appraised value||$700,000 * 0.8||$560,000|
|Amount you owe on your mortgage||$400,000|
|Subtract amount owed from the above amount||$560,000-$400,000||$160,000|
|Possible maximum HELOC amount||$160,000|
Other HELOC Lender Limits
Limits for HELOCs vary based on the lender, and each bank or credit union may have additional criteria that affect amounts they choose to offer. These may include:
- State limits: For example, Texas law limits home equity lines of credit to 80% of loan-to-value (LTV)
- Home-type limits: Whether you live in the house (primary or owner-occupied) or if it’s a second or investment property
- Lien-status limits: Whether you already have a mortgage or lien on your home, or the HELOC will be your only mortgage or lien
- Housing-market limits: Your ability to qualify for a high HELOC limit may depend on your home’s appraised value; in a depressed market, you may not qualify for as much.
Your Credit History
Lenders are seeking signs that you’re a dependable person to lend to—whether $10,000 or $100,000. To get the HELOC or loan amount approved, they may require:
- A certain amount of equity in the home, such as 15-20%
- Good history of repaying debts
- Minimum credit score of 660 to 700
- Documentation of income
- Low debt-to-income (DTI) ratio
- Lower than 30% credit-utilization ratio
Find the Right HELOC Lender for You
When shopping for a HELOC lender, closely compare these offered features of HELOCs:
- HELOC limit
- Monthly payments—interest only, or interest plus principal
- Annual percentage rate (APR)
- Fixed or variable interest rate? How much can this vary?
- Draw and repayment period lengths
- Application, appraisal, and other fees
- Upfront charges, including points
- Closing costs
- Balloon payment requirement, if any
- Availability of renewal or refinancing
Interest payments on a HELOC may be tax-deductible if the borrowed funds are used to “buy, build, or substantially improve” the home securing the loan, according to IRS rules.
Frequently Asked Questions (FAQs)
How do I apply for a HELOC?
How do you increase a HELOC limit?
Unlike a credit card, you can’t simply ask for a new, higher HELOC limit. If you want to bump up your HELOC for home repairs or other reasons, you can contact your bank, credit union, or lending institution to ask about adjusting your HELOC limit. You submit a new application, and if approved, your existing HELOC is refinanced into a new line of credit. This new line could have new terms beyond the increased limits, including changed interest rates, repayment, and draw periods.
How hard is it to get a HELOC?
Getting approved for a HELOC depends on the strength of your credit and your DTI and LTV ratios, along with other factors. If your credit score isn’t high enough, you may only qualify for a smaller HELOC amount or pay a higher interest rate.
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Federal Reserve Board. “What You Should Know About Home Equity Lines of Credit,” Pages 2-4.
Office of the Comptroller of the Currency. “Home Equity Loans & Lines of Credit.”
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Federal Reserve Board. “What You Should Know About Home Equity Lines of Credit,” Page 3.
Credit Union of Texas. “HELOC.”
Credit Union of Southern California. “HELOC Eligibility Requirements and Qualifications.”
Discover. “Credit Score Requirements for HELOC.”
Federal Reserve Board. “What You Should Know About Home Equity Lines of Credit,” Page 2.
Truist. “Home Equity Line of Credit.”