Credible
Get Rates
  • Refinance Student Loans
    • Compare Options
      • Best Refinancing Companies
      • Lender Reviews
      • Refinance Student Loans
      • Student Loan Consolidation
    • Learn the Basics
      • Fixed vs. Variable Rates
      • Forgiveness Programs
      • Consolidation vs Refinancing
      • Repayment Plans
      • More on Student Refi
    • How to
      • Consolidate Your Student Loans
      • Pay Off Your Student Loans
      • Lower Your Interest Rate
    • Tools
      • Current Student Loan Refi Rates
      • Refinancing Calculator
      • Repayment Calculator
  • Student Loans
    • Compare Options
      • Best Private Student Loans
      • Lender Reviews
      • Private Student Loans
      • Parent Student Loans
    • Learn the Basics
      • Student Loan Limits
      • Living Expenses
      • Applying for FAFSA
      • Federal Student Loans
      • Student Loan Interest Rates
      • More on Student Loans
    • How To
      • Pay for College
      • Take Out Student Loans
      • Apply Without Cosigner
      • Apply for Student Loans
      • Pay for Grad School
    • Tools
      • Current Student Loan Rates
      • Student Loan Interest Calculator: Estimate Payments
  • Personal Loans
    • Compare Options
      • Best Personal Loan Lenders
      • Lender Reviews
      • Get Personal Loan Rates
    • Learn the Basics
      • How to Qualify
      • How to Get a Loan
      • Where to Get a Loan
      • Personal Loans with Cosigner
      • Pay Off Credit Card Debt
      • More on Personal Loans
    • Best for
      • Credit Card Consolidation
      • Debt Consolidation Loans
      • Home Improvement Loans
      • Good Credit
      • Fair Credit
      • Bad Credit
    • Tools
      • Current Personal Loan Rates
      • Personal Loan Calculator
  • Mortgages
    • Compare Options
      • Mortgage Refinance
      • Home Loan
      • Mortgage Preapproval
      • Mortgage Payment Calculator
    • Compare Rates
      • Mortgage Refinance Rates
      • 30-Year Fixed Refinance Rates
      • 15-Year Fixed Refinance Rates
      • Home Loan Rates
      • 15-Year Fixed Mortgage Rates
      • 30-Year Fixed Mortgage Rates
    • Learn the Basics
      • How to Buy a House
      • How to Refinance Your Mortgage
      • How to Get the Best Rate
      • Cash-Out Refinancing
      • More on Home Loans and Refi
    • Pay Off Mortgage
      • Home Equity to Pay Off Debt
      • Paying Off Mortgage Early
      • Mortgage Refinance Cost
  • Company
    • About
    • Reviews
    • Blog
    • Lenders
    • Editorial Guidelines
    • FAQs
    • Press
  • Find My Rate

Here’s What You Need to Get a Home Equity Loan or HELOC

You’ll need decent credit and a low debt-to-income ratio to qualify for a home equity product. If you don’t qualify, a cash-out refinance may be an option.

Aly J. Yale Aly J. Yale Updated December 3, 2020

Home equity loan and HELOC requirements hero
Advertiser Disclosure

Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as "Credible."

If you’re looking to renovate your house, cover sudden expenses, or pay for your child’s college tuition, your home equity may be able to help.

With a home equity loan or Home Equity Line of Credit (HELOC), you can turn that equity into cash, using it to lighten your financial load or improve your property, among other things. Learn more about using a home equity loan or HELOC for your expenses below.

Requirements for tapping your home equity

  • At least 15% equity in your home
  • Debt-to-income ratio of around 43% or less
  • Credit score in the mid-600s — or higher
  • History of paying your bills on time

At least 15% equity in your home

When it comes to home equity loans and HELOCs, many lenders require you to have 15% equity in your home, though some may go higher. Wells Fargo, for example, requires at least 20%.

You won’t be able to tap all of that equity, though — no matter how much you have. Your lender will set your borrowing limit based on your loan-to-value ratio (how much you still owe on the home versus its market value.) Your LTV is basically the inverse of your equity, so the more equity you have, the lower your LTV will be.

Generally, lenders want to see a combined LTV of no more than 85%. To calculate your LTV — as well as your equity stake, you’ll first need your property value. You may need a home appraisal for this, which typically costs around $400.

Once you know your home’s value, divide your loan balance by the value and multiply by 100. This is your LTV.

For your equity, you’ll subtract the loan balance from your home’s value, and then divide that number by the home’s value.

Here’s an example:

  • Loan balance: $125,000
  • Home value: $275,000
  • LTV: 45.45% (125,000 / 275,000 x 100)
  • Equity: 54.54% (275,000 – 125,000 / 275,000)

Why it matters: Lenders use your equity and LTV to determine how much you can borrow and comfortably afford.

In the above example, with a home value of $275,000 and a maximum LTV of 85%, your two loans would need to total $233,750 or less (275,000 x 0.85) for you to qualify.

Credible makes finding great mortgage rates easy. You can compare prequalified rates from our partner lenders in the table below, all by filling out just one simple form.

A debt-to-income ratio of around 43% or less

Your debt-to-income ratio (DTI) — or what percentage of your monthly income your debts take up — will also play a role. Typically, lenders require a DTI of 43% or lower.

To calculate your DTI, add up your monthly expenses, including your mortgage payment, student loan payments, regular bills, child support, and other debt, and then divide that by your monthly income.

Here’s an example:

  • Monthly debts/obligations: $1,800
  • Monthly income: $4,000
  • DTI: 45% (1,800 / 4,000)

Home equity loans offer less flexibility regarding DTI than HELOCs. In most cases, home equity loan borrowers must have a 43% DTI or lower to qualify. Some lenders are even more stringent, requiring DTIs as low as 36%.

With HELOCs, lenders have more leeway. They may go as high as a 50% DTI in some cases.

Why it matters: Lenders use your DTI to make sure you have the available funds to continue meeting your monthly obligations, as well as cover your new loan payment.

Keep Reading: HELOC vs. Home Equity Loan: How to Decide

A credit score in the mid-600s — or higher

Exact credit score requirements vary by lender, but you generally need a score in the mid-to-high 600s to qualify for a home equity loan or HELOC. A high score (think 760 or above) typically makes for the easiest qualification process and gives you access to the lowest interest rates.

If your score is in the low 600s or below, you may have trouble securing a home equity product, though it’s not impossible. If you’re less risky in other areas — you have a low LTV or DTI, for example — then you may still be able to qualify. Just be sure to shop around and consider a number of lenders if you fall into this low-score category.

Why it matters: Your credit score reflects your payment habits. The higher the score, the easier it will be to get a home equity loan and the better rate you’ll get.

Learn More: Credit Score Needed to Refinance Your Home

A history of paying your bills on time

Lenders will also pull your credit report and evaluate your payment history. They want to see that you’re paying your bills consistently and on time (this indicates that you’ll likely do the same on your home equity loan).

A history of spotty or late payments is a big red flag to a lender, even if your score is fairly high. Because of this, it’s important to stay on top of your bills — especially in the months leading up to your loan application.

Why it matters: Being consistently late on your payments indicates you’re an unreliable and high-risk borrower. It may mean not qualifying for a home equity loan or, at the very least, getting a high interest rate.

Want another way to leverage your home equity?

If you’re not sure you qualify for a home equity loan or HELOC — or are afraid your interest rate would be too high — a cash-out refinance is another option to explore. These have slightly less stringent requirements and generally come with lower interest rates than home equity loans or HELOCs, especially in the current market.

Another advantage is that a mortgage refinance replaces your existing loan, so you’ll only make one monthly payment — and potentially lower your interest rate in the process.

If you’re considering a cash-out refinance, be sure to look at as many lenders as possible. Credible makes finding the best deal easy — you can see prequalified rates from our partner lenders in as little as three minutes.

Get the cash you need and the rate you deserve

  • Compare lenders
  • Get cash out to pay off high-interest debt
  • Prequalify in just 3 minutes

Find My Loan
No annoying calls or emails from lenders!

Trustpilot

About the author
Aly J. Yale
Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

Read More

Home » All » Mortgages » Here’s What You Need to Get a Home Equity Loan or HELOC

Home Equity Guide


  • What Is Home Equity
  • Home Equity Loans
  • Home Equity Line of Credit
  • Cash-Out Refinance
  • Reverse Mortgages
  • Refinance a Home Equity Loan

Understand Your Options

  • Pros and Cons of Second Mortgages
  • Home Equity Loan & HELOC Requirements
  • Cash-Out Refinance Tax Implications
  • HELOC vs. Home Equity Loan
  • Cash-Out Refi vs. Home Equity Loan
  • Bad Credit Home Equity Loans

Tools and Resources

  • Refinance Your Mortgage
  • Pay Off Your Mortgage Faster
  • Today’s Mortgage Refi Rates
  • How to find the Best Lenders
  • Lender Reviews

  • Click to share on Facebook (Opens in new window)
  • Click to share on LinkedIn (Opens in new window)
  • Click to share on Twitter (Opens in new window)

Related Articles

Mortgages

Understanding Home Equity: What It Is and How To Use It

Mortgages

HELOC vs. Home Equity Loan: How to Decide

Mortgages

Home Equity Loans: How They Work and How to Use Them

  • Read More
    • Refi Student Loans
    • In School Loans
    • Personal Loans
    • Mortgages
  • Resources
    • Lender Reviews
    • Loan Calculators
    • Data Insights
    • Debt Statistics
    • Sitemap
  • Compare
    • Student Loan Refinance
      • Current Student Loan Refi Rates
    • Student Loan Consolidation
    • Private Student Loans
      • Current Student Loan Rates
    • Personal Loans
      • Current Personal Loan Rates
    • Refinance Mortgage
      • Mortgage Refinance Rates
        • 15-Year Fixed Refinance Rates
        • 30-Year Fixed Refinance Rates
    • Home Loans
      • Home Loan Rates
        • 15-Year Fixed Mortgage Rates
        • 30-Year Fixed Mortgage Rates
  • Top Lenders
    • Best Student Loan Refi Companies
    • Best Private Student Loans
    • Best Personal Loans
  • Company
    • About
    • Reviews
    • Blog
    • Editorial Staff
    • Editorial Guidelines
    • News
    • Press
  • Legal
    • Terms of Use
    • Privacy Policy

© 2021 Credible


Credible Operations, Inc. NMLS ID# 1681276 | NMLS Consumer Access | Licenses and Disclosures
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.