How much money can you borrow with a HELOC?

If you’ve been paying your mortgage and building home equity, one financing option that becomes available to you is a home equity line of credit. A HELOC is one way you can borrow money using your home equity as collateral. It also means you’ll have a second mortgage, and if you can’t pay it back, you could risk losing your home.

If you’ve built a fair amount of equity in your home, you might be wondering, “how much of a HELOC can I get?” Let’s get into what a HELOC is, how it works, and how you can calculate how much you can borrow.

How do HELOCs work?

A HELOC is a second mortgage on your home, separate from your first loan. Instead of borrowing a lump sum with a home equity loan, a HELOC gives you access to a line of credit that works similarly to a credit card. You can borrow against your HELOC repeatedly up to the limit provided and only owe interest on the funds you withdraw.

When you use a HELOC, you can borrow against your credit line any time during the draw period. Most HELOCs have a 10 - 15-year draw period. You don't need permission to use the funds as long as they’re within the limits described in your agreement. If you repay what you use, you can use it again during the draw period. During the draw period, you only need to make interest-only payments.

After the draw period ends, you’ll enter the repayment period. During this time, you cannot access the funds and must repay the principal and interest over the course of 10 - 20 years. Expect your monthly payments to be considerably higher because you’ll be paying back what you borrowed with interest. Also, HELOCs typically come with a variable interest rate, which means your monthly payments can change. Some HELOCs have the option of converting what you owe to a fixed interest rate. This rate is typically higher but it makes the monthly payment predictable.

Lenders charge different fees to set up this line of credit. This can include a property appraisal and application fee. There may also be a minimum of how much you’re able to borrow each time. It’s important to note that while Rocket Mortgage® doesn’t offer HELOCS at this time, we’re committed to helping you learn about your options.

In order to get a HELOC, lenders typically require that you have a minimum of at least 15% to 20% equity in your home. You can use our home equity calculator to help you estimate how much equity you have in your home.

What determines how much you can borrow with a HELOC?

The amount of money that you can borrow with a HELOC will depend on your lender, the amount of equity you currently have in your home, and your credit score.

Equity in your home

You can think of home equity as the amount of home you currently own based on the payments you’ve made so far. Home equity is the difference between what your home is worth and what you still owe on your mortgage. With each mortgage payment, you chip away at your principal balance and build equity.

If you meet your lender’s qualification requirements, you can typically borrow up to 85% of your home’s value, including your current mortgage.

Home appraisal

You need to know the current value of your home in order to determine exactly how much equity you have. To do this, your lender will arrange to have your home appraised. During the appraisal, a licensed professional will examine your home and compare it to similar homes in the area. The appraiser will put together an appraisal report they provide to the lender to determine your loan-to-value ratio (LTV) and how much you can borrow. The home appraisal is a part of your closing costs and may cost $300 to $500.

How to calculate your HELOC borrowing power

To calculate your HELOC borrowing power, you need to know your lender’s LTV limits, the current value of your home, and how much you still owe on your mortgage.

Let’s say your lender will allow you to borrow up to 85% of your home’s value and your home is currently worth $400,000:

Home value x Lender LTV limit = Total allowed outstanding debt

400,000 x 0.85 = 340,000

That means the most you can borrow - including your first mortgage – is $340,000. Now, suppose you still owe $100,000 on your mortgage.

Total allowed outstanding debt – Current mortgage balance = HELOC borrowing power

$340,000 - $100,000 = $240,000

In this example, you could potentially borrow up to $240,000 with a HELOC.

HELOC qualification requirements

To get approved for a HELOC, lenders need to confirm that you can afford to repay your loan. While the exact eligibility criteria will vary depending on the lender, here are some requirements you can expect you’ll need to meet.

• Good credit: Your credit score tells lenders how responsibly you’ve managed debt in the past. You may be able to get a HELOC with a credit score of at least 680, but lenders typically look for scores of 720 or higher for the best rates, terms, and the highest loan amounts.
• Reliable income: A HELOC takes a second lien position behind your primary mortgage. If you run into money trouble, you’ll prioritize your first mortgage, which puts HELOC lenders at risk. As a result, they often look for a stable 2-year income history.
• Low debt-to-income ratio (DTI): Your DTI tells lenders the percentage of your income committed to existing debts. They prefer to keep DTIs no higher than 43%, but this may vary by lender.
• Positive payment history: Your current payment history helps lenders determine if you’re a good candidate for a HELOC. Timely payments on your first mortgage will help lenders determine if you’re a reasonable risk.

Alternatives to a HELOC

HELOCs aren’t the only way to use your home’s equity to borrow money. While Rocket Mortgage doesn’t offer HELOCs, we offer alternative financing options worth considering.

Home equity loan

A home equity loan is another type of second mortgage that uses your home’s equity as collateral. The difference is that instead of borrowing against a line of credit, you receive the money in one lump sum. HELOCs usually come with variable interest rates, but home equity loans typically have fixed interest rates. As a result, home equity loans tend to be a good option for borrowers who want predictable monthly payments.

Cash-out refinance

A cash-out refinance is an alternative for borrowers who don’t want to take out a second mortgage and have an additional payment to make each month. Instead, you take out a new loan that replaces your current mortgage for a larger amount and withdraw the difference. Like with a home equity loan, you receive the money in one lump sum.

FAQ about how much of a HELOC you can get

Here are some other common questions homeowners have about HELOCs.

Is there a maximum amount I’m allowed to borrow with a HELOC?

The amount you can borrow with a HELOC will depend on your lender, the current value of your home, and your outstanding mortgage balance. With many lenders, you can borrow up to 85% of your home’s value, minus your current mortgage balance.

How can I tell how much of a HELOC I can get?

Assess your home's value to determine how much of a HELOC you can get. You can use online valuations or talk to a local real estate agent or appraiser. Then, multiply the value by 85% and subtract your existing mortgage loans to determine how much you can borrow.

How can I use my HELOC?

You can use the funds from your HELOC however you wish. Some borrowers use them to consolidate debt, make home improvements, or pay for unexpected large expenses like medical bills. Some even keep the funds as emergency funds, should they need them.

What are interest rates like on HELOCs?

HELOC rates are higher than rates on first mortgages because they pose a higher risk to lenders. If you default on your monthly payments, the first mortgage lender gets repaid first, and then second lien holders receive whatever is left up to what they’re owed. However, interest rates on HELOCs tend to be lower than non-secured financing like personal loans and credit cards.

Can I get a HELOC for my second home or investment property?

It’s possible to get a HELOC for a second home or investment property, but the qualification requirements may differ.

The bottom line: Is a HELOC right for you?

A home equity line of credit is one way you can use the equity you’ve built in your home as collateral to borrow money. A HELOC can be useful for borrowers looking to cover home improvements or tuition costs if they don’t know exactly how much they’ll need or will need to draw against a line of credit multiple times. Because HELOCS are secured by your home, they can come with more favorable terms than other loans. However, if you can’t pay back what you borrow on a HELOC, you could risk losing your home.

If you’re interested in other types of financing, start your application with Rocket Mortgage today.

Home Equity Loan product requires full documentation of income and assets, credit score and max loan-to-value (LTV), combined loan-to-value (CLTV), and home equity combined loan-to-value (HCLTV) ratios. Requirements were updated 2/5/2024 and are tiered as follows: 680 minimum FICO with a max LTV/CLTV/HCLTV of 80%, 700 minimum FICO with a max LTV/CLTV/HCLTV of 85%, and 740 minimum FICO with a max LTV/CLTV/HCLTV of 90%. Your debt-to-income ratio (DTI) must be 50% or below. Valid for loan amounts between $45,000.00 and $500,000.00 (minimum loan amount for properties located in Michigan is $10,000.00). Product is a second standalone lien and may not be used for piggyback transactions. Product not available on Schwab products. Guidelines may vary for self-employed individuals. Some mortgages may be considered “higher priced” based on the APOR spread test. Higher priced loans are not allowed on properties located in New York. Additional restrictions apply. Not available in Texas. This is not a commitment to lend.