Many homeowners are inquiring about the current requirements to take out a home equity line of credit or HELOC. Borrowers must learn about the HELOC loan requirements for cash out like credit score, debt to income ratio and loan to value before completing a loan application with a mortgage lender or bank.
One of the best parts of owning a home is its growing equity. Between making your mortgage payments and home appreciation, your equity increases substantially over the years. Once you have at least 10 to 20% equity in your home, you may be able to borrow some of that cash with a home equity line of credit.
Whether you want to renovate your home or pay off credit card debt, a home equity loan can get you thousands in cash for whatever you want to purchase. Discover how to qualify for a HELOC and the home equity line of credit requirements in 2025 below, and if you have questions or want to apply, one of our loan professionals can help.
Home Equity Line of Credit Requirements Guide 2025
A home equity line of credit is an adjustable-rate second mortgage that can be used to take out some of the equity in your home.
This secured line of credit, if approved, gives you a lump sum of cash that you can use for whatever you like.
A home equity line of credit is backed by the property, so you can usually get a lower interest rate than on credit cards or personal loans.
If you are more financially conservative, a home equity line of credit may be a smart decision because of its fixed rate. A home equity line of credit (HELOC) is similar to a home equity loan, but HELOCs have a variable interest rate and revolve like a credit card.
Home equity loans and HELOCs are rising in popularity in 2024 as rising interest rates have led to some credit cards charging 20% or more in interest annually.
A home equity credit line could save you thousands in interest every year and may be the ideal low-interest line of credit choice this year. As of March 2024, the average home equity line of credit intro rate in the US is 7%.
Every HELOC lender has different loan requirements, but these are generally the standards and requirements for a home equity line of credit:
20% Equity in The Property
Equity is the difference between what is owed on the first mortgage and the home’s current value. For example, if you have a first mortgage balance of $150,000 and your house is valued at $450,000, you have a loan-to-value (LTV) of 33%. This is more than enough equity to qualify for most home equity loans, if you meet the other requirements. The HELOC equity requirements offer the lender a hedge against default.
Decent Credit
Many lenders will allow you to get a home equity loan if your credit score is in the mid-600s, while others will require a 680 score. However, you will need a higher credit score to get the best interest rate. If you have a 620 score, you still might get a HELOC or home equity loan, but the lender may require you to have more equity or have less debt. The HELOC credit score requirements vary depending upon whether you are speaking with a conservative credit union, conventional lender or Non QM lender.
Debt-To-Income (DTI) No Higher Than 43%
DTI measures how much of your gross monthly income is paid to debts. DTI calculations include your mortgage, credit cards, car loans, child support, student loans, etc. The DTI to qualify for a HELOC or home equity loan varies, but many lenders prefer the applicant have a maximum 43% DTI, and lower is better. You could get a better rate on the line of credit if you have a lower DTI, so work on paying off debts before applying. The HELOC income requirements are critical as your debt to income ratio helps the underwriter know whether or not you can afford the proposed HELOC.
Enough Income
There is no exact income requirement for getting a home equity loan; income standards depend on the amount of money being borrowed and how much debt you have. You do need to make enough money to meet the lender’s DTI standard for how much money you want to borrow. You also need to prove that you have a consistent monthly income. So be ready to provide pay stubs, W-2s, bank statements, and tax returns.
How Do I Get a HELOC Line of Credit?
Has your home value been soaring the last few years?
In 2024, many homeowners in the United States are sitting on tens or hundreds of thousands in equity in their properties.
According to some estimates, homeowners are collectively sitting on $30 trillion in home equity! That comes out to about $200,000 in cash per homeowner.
Most homeowners have to wait until they sell to enjoy their new wealth.
But you also can get a fixed rate home-equity line of credit to get the cash you need now.
As you make your mortgage payments and the home appreciates, your equity rises.
When you take out a home equity loan, you can switch that equity into cash to renovate the house, pay off debt, cover college tuition and more.
General HELOC Loan Application Requirements
To qualify for a home equity loan or HELOC, you’ll need sufficient equity in your home, good credit, a strong payment history, proof of income, a low debt-to-income ratio, and proof of homeowners insurance. Before moving forward, it’s important to understand the lender’s criteria to enhance your chances of approval. Here are the key requirements for a HELOC.
Every lender is different, but below are the most typical lending requirements for a HELOC:
- Credit score: Most lenders want to see at least a 680 credit score. However, there are some lenders that may approve a HELOC at a higher rate if you have a 620 credit score and have other factors in your favor, such as a lower debt-to-income ratio. If you have a lower credit score, you may need to apply at several lenders to get an approval. BD Nationwide can introduce you to bad credit HELOC lenders if you have a credit score between 500 and 619.
- Home equity: Most lenders want you to have at least 15% or 20% equity in the home. Even if you are approved for a HELOC, you will generally need to keep at least 15% equity in the home, so an LTV of 80% or 85% is typical. The days of borrowing 100% of your equity are long gone!
- DTI: Lenders want to know you have a reasonable amount of debt and the ability to make your monthly payment. Generally, lenders want a maximum DTI of 43%. But the lender may set a stricter requirement if you have bad credit. BD Nationwide can get you matched with high LTV HELOC lenders if you have a debt to income ratio between 43 and 50%.
Getting a HELOC is becoming more popular in 2024 as higher interest rates make doing a cash-out refinance more difficult. Most homeowners have a rate well below current mortgage rates of 7% or so. Getting a HELOC is a way to access your equity while still getting a reasonable interest rate. If you’re ready to tap your equity, speak to one of our loan professionals now about applying for a HELOC. If you have an average or low credit score, we’ll provide you with all of your loan options for HELOC or other types of loans.
How to Get a HELOC or Home Equity Line of Credit
Every mortgage lender has different loan requirements, but this will give you an idea of what you may need for a loan approval:
- At least 15% or 20% equity in the home.
- A 620 minimum credit score. Many lenders may want a higher score, and people with a 700+ credit score will secure the best rates.
- Debt-to-income (DTI) ratio no higher than 43%. You may receive a better HELOC rate if your DTI is lower.
- To make sure you have enough home equity, your lender may require a new appraisal. Some lenders may be satisfied with a drive-by, informal appraisal.
The first step is to speak to your loan provider about a home equity loan, so contact us today and we’ll help you file an application.
FAQ on Home Equity Credit Lines and HELOCs
Take a few minutes and read the expert answers to the frequently asked questions about HELOCs this year.
What Is a Home Equity Line of Credit?
A home equity line of credit, also called a HELOC is a revolving credit line with a variable interest rate, much like a credit card. This home equity credit line is linked to the equity in your home, allowing you to borrow and repay funds as needed within a set period. After this period ends, you’ll repay the borrowed amount in installments.
A home-equity line of credit is also a second mortgage that lets the homeowner tap some of their equity for cash now. You receive the money as a HELOC draw in a credit line that you pay monthly as an interest only payment until the repayment period kicks in 10 or 15 years later. You only pay interest on the portion you access. The draw period may be between five and 15years. The length of the HELOC loan you select depends on your financial needs but remember: You will pay higher interest with a longer-term loan.
Homeowners often turn to a home equity loan to get a fixed-rate loan that can get them the thousands in cash they need. This loan may be preferable for some borrowers because it has a fixed rate, unlike a home equity line of credit (HELOC) with a variable interest rate.
As of August 2024, the average rate for a home-equity line of credit at 8.10%, but your rate could be higher or lower. Much depends on your income, credit score, amount of equity, and the specific lender and loan product. If you have good credit, you can save a lot of money by choosing a home equity loan over a personal loan or maxing out your credit card. Before you make a big financial decision on what type of loan to get, learn about the difference between a home equity loan vs line of credit.
How Does a HELOC work?
A HELOC is a revolving credit line that allows you to borrow and repay funds repeatedly, similar to a credit card. Typically, you can access up to about 80% of your home’s equity with a credit line, though HELOC guidelines may vary. Repayment terms can extend up to 30 years, depending on the lender.
Unlike a credit card, a HELOC’s term is divided into a draw period and a repayment period. During the draw period, usually lasting from five to 15 years, you can withdraw funds up to your credit limit and are only required to make minimum interest only payments.
After the draw period ends, you can no longer withdraw funds and must repay the amount borrowed during the repayment period, which generally spans 10 to 20 years.
Can I get a home equity line of credit as a self-employed borrower?
There are many programs that include a home equity line of credit with no income documentation required for the qualified borrowers. The self employed HELOC is one of the most popular 2nd mortgages this year.
Can I get a home equity line of credit on second home?
Many borrowers take out a HELOC on a second home or vacation home. There are also real estate investors that take out a HELOC on an investment property as well. Many of these real estate investors wisely use the HELOC to cover the down payment required on investment properties. Learn more about HELOCs on investment properties.
Can I get a non owner occupied home equity line of credit?
Yes, a HELOC on non owner occupied property is possible but you will like need more equity or a lower LTV to qualify. The non owner occupied HELOC interest rate is typically a half point to a full percentage point higher, depending upon your credit score and loan to value ratio.
What are typical HELOC rates In 2024?
One of the best reasons to get a HELOC in 2024 is you can frequently get a more competitive rate than with unsecured loans, such as credit cards and personal loans. What your interest rate will be depends on many factors: credit score, amount borrowed, DTI, income, loan-to-value, etc.
However, in July 2024, the typical HELOC rate was between 7.625% and 10% for most borrowers. The average rate was 9.12%. Taking out $100,000 with a 90% LTV averaged a 9.82% rate, and 60% LTV for $100,000 was 9.07%. Bear in mind that HELOC rates vary, so your rate could increase or decrease. Potential good news is that many experts believe the Fed will reduce rates this year or next year, which could potentially lead to a lower rate for HELOCs taken out today.
The HELOC rate is based on prime rate. During the draw period, the HELOC minimum monthly payment is an interest only payment.
How do HELOC interest rates change?
Discover HELOC rates and how they work. Home equity lines of credit (HELOCs) often come with variable interest rates, meaning your rate can change (or “adjust”) each month. Your lender will calculate your HELOC rate based on the following factors:
The Index: This is a baseline rate determined by the market, serving as the starting point for calculating your HELOC rate. Each lender can establish their own prime rate based on their market assessment. However, many lenders use a standard index like the U.S. prime rate or the Constant Maturity Treasury (CMT).
HELOC Margin: This is a fixed amount added to the index to determine your interest rate. Factors specific to you, such as your loan amount, credit score, and debt ratio, influence how much your lender adds. This margin is how lenders profit from a HELOC.
The Ceiling: This sets a cap on how high your interest rate can go during the loan term. The ceiling varies between lenders, but federal credit unions are not allowed to exceed 18%.
Lenders are required to disclose how they will calculate your HELOC rate adjustments.
Do banks and lenders offer a home equity line of credit introductory rate?
Sometimes credit unions, banks and lenders offer discounted offers with a HELOC introductory rate. Keep in mind that the HELOC introductory rates do not last forever. Typically, 3 to 6 months is common with introductory HELOC rates and the borrower will likely be required to have a credit score higher than 720. We suggest shopping fora low introductory rate when considering HELOC lenders.
Can I get a HELOC on a Manufactured home?
There are a few lenders that offer a home equity line of credit for manufactured homes, but finding a HELOC or home equity loan on a mobile home will be difficult. BD Nationwide can help you explore the possibilities of getting a home equity line of credit on a manufactured home.
Can I get a home equity line of credit after a bankruptcy?
Yes. There are many lenders that will approve a HELOC after a bankruptcy depending upon how long the bankruptcy has been discharged. BD Nationwide can help you find lenders that offer bad credit home equity loans as long as you have some equity and reestablished credit. It is very difficult to find a bank or lender that offers a home equity line of credit no credit check.
What are the closing costs on a HELOC?
Closing costs for a home equity line of credit or HELOC typically range from 1% to 5% of the total credit line amount. While similar to the closing costs for a home equity loan, HELOCs may have lower closing costs because the loan amount is usually smaller and some HELOC fees are less expensive. Make sure that you compare the annual percentage rate (APR) when considering multiple equal housing lenders, credit unions and banks.
Common HELOC closing costs :
- Origination fees
- Underwriting fees
- Recording fees
- Processing fees
- Appraisal fees
- Title fees
- Escrow fees
Can I get a home equity line of credit with no appraisal?
Yes. There are a few lenders that offer a HELOC with no appraisal required. BD Nationwide can help you find 2nd mortgage lenders that offer a home-equity line of credit with an AVM (automated value model) or a desktop review appraisal. Learn more about home equity loans with no appraisal required.
How much can you get with a HELOC?
It depends on the home’s value and how much equity you have.
Most lenders let you borrow up to 80% of the home’s value, but some may allow 85% or even 90% if you have a stellar credit rating and solid income.
Suppose your home is worth $300,000 and you have a $200,000 balance on the first mortgage.
There is $100,000 of equity there, so a typical home equity lender may let you borrow up to $80,000.
A benefit of the HELOC is you don’t have to use that $80,000 all at once.
You can use part of it, then wait to use more. Or, you could hold onto the entire HELOC for an emergency; this is a common use for some borrowers.
You only pay interest on the money you have taken out. On the other hand, with a home equity loan, you would receive all the money at once and pay interest on the full amount from day 1.
Easy. A HELOC gives many homeowners access to a lot of money (equity) at a relatively low rate. It is estimated that US homeowners have tens of trillions of dollars in equity in their homes. Interest rates are higher than a few years ago, so few homeowners are tempted to do a cash-out refinance with their first mortgage. A HELOC makes more sense for people who want to keep their mortgage in place, but still get low-interest cash. Read more about the FTC tips for getting an equity line.
What About a HELOC vs Cash-Out Refinance?
With a home equity loan, you receive a lump sum of cash in your bank account when the loan is approved and funded. It is a fixed-rate loan with a fixed period to pay it off, so this loan may be preferable if you like financial certainty.
Another option is a home equity credit line. With a HELOC, you get a credit line that uses part of your home equity. You still have roughly the same amount of money as a home equity loan, but it is a line of credit. You don’t get charged interest until you take the money out, whereas you are charged interest on all the money with a home equity loan.
A HELOC has a variable interest rate that is tied to major indexes, such as LIBOR. HELOC interest rates are generally higher than three or four years ago, but a HELOC interest rate can go up or down, while a home equity loan has a fixed rate. You can reuse a HELOC after you pay off the credit line. You may prefer a HELOC if you will use the money over time, such as for paying college tuition. You will not pay interest on the money that you have not taken out.
A cash-out refinance can be a smart way to get cash if you have a higher rate on your first mortgage than current rates. In August 2024, 30-year mortgage rates are around 6%, and many homeowners have a lower rate than that. So, cash out refinances are not as popular, but when rates come down, more homeowners may decide to refinance. A home equity loan may be the better choice for the homeowner who doesn’t want to touch their first mortgage and likes the certainty of a fixed rate and payment period.
If you are consolidating debt, a home equity loan can be an excellent financial tool for homeowners who want to access low-interest cash for major expenses. With a fixed-rate home equity loan, you can get low-interest cash that is much cheaper to borrow than most personal loans are credit cards. Talk to your lender today about comparing the home equity loan and cash out refinance so you can make the best choice for your situation.
What’s the difference between a credit card and a home equity line of credit?
Both credit cards and HELOCs function as revolving lines of credit, allowing you to borrow funds up to a predetermined limit. As you repay what you borrow, you can access those funds again, and you only pay interest on the amount borrowed.
Credit cards are generally used for everyday expenses like groceries and entertainment, while a HELOC is better suited for larger expenditures such as home improvements or college tuition.
Takeaway on Home Equity Line of Credit Requirements
A home equity line of credit is a very popular way in 2024 to get the cash you need at a reasonable rate. Interest rates are higher for HELOCs than three or four years ago, but you still can save a bundle by tapping your equity instead of maxing out your credit cards. BD Nationwide will match you with top lenders today so you can compare the various HELOCs and equity loans that are available with your credentials.
Learn more about HELOC disclosure requirements: *APR = Annual Percentage Rate. Credit qualifications and approval are required. Closing costs, HELOC rates, terms, and conditions are subject to change without notice. The Home-Equity Line of Credit Rates: The introductory HELOC rate of 2.59% APR is fixed for the first 12 months. After that, the introductory HELOC rate will adjust annually on the anniversary date of the line of credit to the current Prime Rate as published in the Wall Street Journal. The minimum rate (floor) is 3.80% APR, and the maximum rate (ceiling) is 5.00% APR above the Prime Rate at the time of your HELOC application.