How Much Can I Borrow With a HELOC?
A Home Equity Line of Credit (HELOC) offers a way to use the equity you've built up in your home to meet your financial goals. But how much HELOC can you get?
In this article, we'll walk you through everything you need to know about your borrowing power with a HELOC, including the factors that influence how much you can access and the steps you can take to maximize your loan amount.
Along the way, we'll also introduce you to our flexible HELOC options that are designed to meet your needs quickly and efficiently.
If you’re ready to see what your home equity can do for you, start your HELOC application now and unlock the potential of your home’s value in just minutes!
How Much Equity Do I Need to Get a HELOC?
Home equity is the difference between your property’s current market value and the outstanding balance on your mortgage. At Rate, we require you to have at least 20% equity or higher. This means that your loan-to-value ratio (LTV) , which is the percentage of your home’s value that is currently financed through a mortgage, should not exceed 80% of your home’s appraised value.
However, we understand that every homeowner’s situation is unique. That’s why we offer flexible HELOC options with a combined loan-to-value (CLTV) ratio (includes both your existing mortgage and the new HELOC) as high as 85%, giving you access to the funds you need even with a lower home equity of at least 15%.
How Much Can I Borrow With a HELOC?
Lenders typically allow you to borrow a percentage of your home’s value, factoring in how much you still owe on your mortgage.
For example, if your LTV ratio is 80%, you may be eligible to borrow up to 80% of your home’s value, minus the balance of your existing mortgage. Your credit score, income, and debt-to-income ratio also play a role in determining your loan amount. Understanding these factors can help you set realistic expectations and plan effectively for your HELOC.
With a flexible line of credit, HELOCs allow you to tap into your home’s equity as needed for major expenses like home renovations, education costs, or debt consolidation.
At Rate, we give HELOCs with loan amounts from $25,000 to $400,000**, based on the value and equity of your house.
Your highest loan amount could be less than $400,000, depending on your eligibility, which is based on factors like your HELOC LTV and CLTV ratios.
We’re here to guide you through the process and ensure you get the most out of your home’s value.
How Can You Calculate Your HELOC Borrowing Power?
Determining how much you can borrow with a HELOC is key to planning your financial strategy. By understanding your home’s equity and the factors lenders consider, you can get a clearer picture of your borrowing power.
Whether you're looking to fund a home renovation, consolidate debt, or cover major expenses, estimating how much you can access through a HELOC can help you make informed decisions and set realistic financial goals.
Follow these simple steps to estimate how much you may be able to borrow:
Step 1: Determine Your Property Value
The first step is to determine the current value of your home. You can get started by getting a general estimate of your home value using our Home Valuation tool if you haven't had a professional appraisal in a while.
When you search for an address, we'll look at data across millions of home records and give you a general idea of how much your home is worth. Our tool helps you get an estimated value of what to expect but you’ll still need to rely on a licensed appraiser for full accuracy.
Step 2: Find Your Mortgage Balance
Next, review your most recent mortgage statement to find the outstanding balance on your mortgage. If you have any additional home equity loans, be sure to include those balances as well.
Step 3: Calculate Your Loan-to-Value (LTV) Ratio
To calculate your Loan-to-Value (LTV) ratio, divide your existing mortgage debt by your home’s current value. For example, if your home is worth $400,000 and you owe $250,000 on your mortgage, your LTV ratio is 63% ($250,000 ÷ $400,000).
Step 4: Determine Your Maximum Borrowing Total
Once you know your LTV ratio, multiply your home’s value by the maximum LTV ratio allowed by your lender. For example, with a maximum LTV ratio of 80%, you would multiply $400,000 (your home’s value) by 0.8, which equals $320,000. This figure represents the total debt allowed on your home.
Step 5: Calculate Your HELOC Borrowing Power
Finally, subtract your current mortgage balance from your maximum borrowing total to determine your HELOC borrowing power. Using our example, if your mortgage balance is $250,000, subtracting this from $320,000 gives you a potential HELOC borrowing limit of $70,000.
Can I Increase My HELOC Limit?
If your initial HELOC limit isn't as high as you'd like, there are several strategies you can use to potentially increase it over time. Here’s how you can boost your borrowing power:
1. Increase Your Home Equity
You can increase your home equity by making improvements that enhance your home's market value, such as:
- Remodeling your kitchen or bathroom
- Upgrading appliances
- Replacing an old roof
Another way to increase your home equity is by paying down your mortgage debt. Regularly making your monthly mortgage payments will gradually reduce the principal balance, but you can make this process faster by making additional payments toward the principal. The more you pay down your mortgage, the more equity you build, which can lead to a higher HELOC limit.
It’s important to note that market conditions can significantly impact your home’s value and, consequently, the equity you have. For instance, in a rising real estate market, your home’s value may increase, potentially boosting your equity and allowing you to borrow more. On the other hand, if property values decline, the equity in your home may decrease, which could reduce your borrowing power or even prevent you from qualifying for a HELOC.
Staying informed about current market trends can help you make more strategic decisions about when to apply for a HELOC.
2. Improve Your Credit Score*
A higher credit score signals to lenders that you are financially responsible, which can increase how much HELOC you can borrow. To improve your credit score, consider taking the following steps:
- Review your credit reports: Check for any errors that may be negatively impacting your score and dispute them if necessary.
- Pay down existing debt: Reducing the balances on your credit cards and other loans can positively affect your credit utilization ratio, which is a key factor in your credit score.
- Consistently pay your bills on time: Late payments can significantly lower your credit score, so ensure that all your bills are paid by their due dates.
3. Reduce Your Debt-to-Income Ratio (DTI)
Your DTI ratio compares your total monthly debt payments to your gross monthly income. A lower DTI ratio indicates that you have more disposable income to cover additional debt, which can lead to a higher HELOC limit.
To reduce your DTI ratio, you can reduce your debt load or increase your income—whether through a salary raise, a side job, or other means.
How Can You Apply for a HELOC Today?
If you're ready to unlock the financial possibilities your home’s equity can offer, applying for a HELOC with Rate is both fast and straightforward. A HELOC from Rate can provide the funds, often with a lower interest rate than many other loan options—you need to:
- Fund a home renovation
- Consolidate debt
- Finance a major life event
We understand that the process of securing a loan can feel daunting, especially if you're unsure of how much you can borrow or how the application works. That’s why we've streamlined our process to be 100% digital, allowing you to complete your application in as few as 15 minutes.
Once approved, you can have the money in your pocket as quickly as five days***.
But we're not just about speed. Our team of knowledgeable mortgage professionals is here to guide you every step of the way. They can help you to:
- Determine your borrowing power
- Understand the terms of your HELOC
- Provide you with support and talk through your financial goals.
Plus, with our fixed-rate HELOCs, you won’t have to worry about fluctuating payments, your HELOC rate is locked in from day one.
HELOC FAQs
1. What are the potential risks associated with a HELOC?
A HELOC can be a flexible financial tool, but it does come with risks. One primary risk is that your home serves as collateral, meaning you could lose your home if you're unable to make payments. Additionally, because HELOCs often have variable interest rates, your payments could increase over time, making it harder to manage your debt. It's important to have a repayment plan in place and to only borrow what you can comfortably afford to repay.
2. How does the draw period and repayment period work in a HELOC?
A HELOC typically has two phases: the draw period and the repayment period. During the draw period, which usually lasts 5-10 years, you can borrow money as needed up to your approved limit and are typically required to make interest-only payments. Once the draw period ends, you enter the repayment period, where you can no longer draw funds, and you must start repaying both the principal and interest. The length of the repayment period can vary but often ranges from 10 to 20 years.
3. Are there any fees associated with opening or maintaining a HELOC?
While there are no upfront costs with Rate's HELOC, there’s an origination fee that’s deducted from the amount disbursed. However, you should also be aware that other lenders might charge additional various fees, such as application fees, appraisal fees, or annual maintenance fees. Additionally, if you decide to pay off and close your HELOC early, some lenders may impose early termination fees. It's important to review all terms and conditions to understand the full cost of your HELOC.
4. How might a HELOC affect my taxes?
Interest on a HELOC may be tax-deductible, but there are specific conditions. To qualify for a tax deduction, the borrowed funds must be used to buy, build, or substantially improve the home that secures the loan. If you use the HELOC for other purposes, such as debt consolidation or education expenses, the interest may not be deductible. It's advisable to consult a tax professional to understand how a HELOC might impact your tax situation.****
5. What happens if my home's value decreases after I take out a HELOC?
If the value of your home decreases after you've taken out a HELOC, you could end up "underwater" on your loan, meaning you owe more than your home is worth. This scenario can be risky if you plan to sell your home, as you may not be able to pay off the total loan balance from the sale proceeds. It's crucial to consider market conditions and potential risks before deciding to take out a HELOC*****.
*If Applicant self-reports credit score as “needs improvement,” Rate, Inc. will not run credit or provide credit scores via the Digital Mortgage. Applicant may request credit scores by contacting Rate, Inc.
**Our loan amounts range from a minimum of $25,000 to a maximum of $400,000. For properties located in AK, the minimum loan amount is $25,001. Your maximum loan amount may be lower than $400,000 and will ultimately depend on your home value and equity at the time of application. We determine home value and resulting equity through independent data sources and automated valuation models.
***Applications may be completed in five minutes but may fluctuate. Five business day funding timeline assumes closing the loan with our remote online notary. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing. In addition, funding timelines may be longer if we cannot readily verify that your property is in at least average condition with no adverse external factors with a property condition report and may need to order a desktop appraisal to confirm the value of your property. Texas borrowers will have a 12-day cooling period prior to closing on their home equity loan which will begin after the borrower has both filed a loan application and received consumer disclosures.
****Rate, Inc. does not provide tax advice. The consumer should always consult a tax advisor for information regarding the deductibility of interest and other charges in their particular situation.
*****Rate, Inc. home equity line of credit (HELOC) is an open-end product where the full loan amount (minus the origination fee) will be 100% drawn at the time of origination. The initial amount funded at origination will be based on a fixed rate; however, this product contains an additional draw feature. As the borrower repays the balance on the line, the borrower may make additional draws during the draw period. If the borrower elects to make an additional draw, the interest rate for that draw will be set as of the date of the draw and will be based on an Index, which is the Prime Rate published in the Wall Street Journal for the calendar month preceding the date of the additional draw, plus a fixed margin. Accordingly, the fixed rate for any additional draw may be higher than the fixed rate for the initial draw. This product is currently not offered in the states of New York, Kentucky, West Virginia, Delaware and Maryland. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact Rate, Inc. for more information and to discuss your individual circumstances. Restrictions Apply.