How much equity do you need for a HELOC?
You need enough equity that your mortgage plus the whole credit line stays under the lender's combined loan-to-value (CLTV) limit, so the equity left after the line is 100% minus that limit: 20% at an 80% limit, 15% at 85%. The CFPB describes the limit as a percentage of the appraised value minus what you owe,[1] and its booklet works an example at 75%.[2] The FTC says many lenders prefer you borrow no more than 80% of your equity,[4] and the NCUA says lenders generally allow up to 85%.[3] The full line counts whether or not you draw it.[6]
Equity needed = home value × (1 − CLTV limit) + the line you want$400,000 × 15% + $80,000 = $140,000
| Home value | At 80% CLTV | At 85% CLTV | At 90% CLTV |
|---|---|---|---|
| $300,000 | $140,000 | $125,000 | $110,000 |
| $400,000 | $160,000 | $140,000 | $120,000 |
| $500,000 | $180,000 | $155,000 | $130,000 |
| $750,000 | $230,000 | $192,500 | $155,000 |
In the example, the home has $160,000 of equity (40%) and the $80,000 line needs $140,000, so the equity test passes with room for a line of up to $100,000. If you only want your equity in dollars, the home equity calculator gives it; the HELOC LTV calculator shows the largest line at every limit from 80% to 100%.
Debt-to-income: the income requirement
Lenders check that you can repay the line, not just its interest. Federal bank supervisors expect underwriting for interest-only and variable-rate HELOCs to assess the borrower's ability to amortize the fully drawn line.[5] So the checker adds the payment on the full line repaid over 20 years, $644.47 a month at 7.50%, to your other debts.
Debt-to-income with the line = (monthly debts + payment on the full line) ÷ gross monthly income($2,500 + $644.47) ÷ $8,333.33 = 37.7%
There is no single legal DTI limit for a HELOC; each lender sets its own. For first mortgages Fannie Mae allows 36% in manual underwriting, up to 45% with strong credit and reserves, and 50% through Desktop Underwriter,[7] which is why the checker starts at 45%. Enter the limit your lender quotes.
Credit score and other HELOC qualifications
Lenders also pull your credit report and weigh your payment history alongside equity and income. No federal rule sets a minimum credit score for a HELOC, and we found no public data source that reports lenders' minimums, so ask each lender for its own. What you should expect to provide:
| Requirement | What it means | What you provide |
|---|---|---|
| Equity (CLTV) | Mortgage + other liens + full line ≤ the lender's limit | Mortgage statement; appraisal or valuation |
| Income and DTI | Debts plus the line's payment fit the lender's limit | Pay stubs, W-2s or tax returns |
| Credit | History of paying on time; the score the lender requires | Permission to pull your credit report |
| Property | Usually the home you live in; investment homes have stricter terms | Homeowners insurance, property tax bill |
| Disclosures | You receive the lender's HELOC disclosures and the CFPB brochure before you pay a nonrefundable fee | Read them; compare rates, margins and caps |
Federal rules also protect you during the process. A lender must give you its disclosures and the HELOC brochure with the application, and cannot keep a nonrefundable fee until three business days after you receive them.[8] If the home is your principal dwelling, you can cancel the line within three business days of opening it.[9]
If you do not meet the requirements yet
- Too little equity: ask for a smaller line. The checker's "largest line" figure is the most the equity test allows. Paying down the mortgage or a rise in value adds equity over time.
- DTI too high: pay off a small debt first or ask for a smaller line. Every $10,000 less on the line lowers the qualifying payment by $80.56 a month at 7.50%.
- Want a fixed payment instead: a home equity loan has the same equity test. Compare the two in home equity loan vs HELOC, then size the payment with the HELOC payment calculator.
Approval is for a limit, not a paymentOnce open, the rate follows the index (usually the prime rate) plus the margin. See the WSJ prime rate for what the index is today and the Fed's outlook.
Frequently asked questions
How much equity do I need for a HELOC?
Enough that your mortgage plus the full line stays under the lender's CLTV limit. At an 85% limit you keep 15% equity after the line; on a $400,000 home an $80,000 line needs $140,000 of equity.[1]
What credit score do you need for a HELOC?
Each lender sets its own minimum; no federal rule sets one, and lenders weigh your credit history together with your equity and income. Ask each lender for its minimum before you apply.
What debt-to-income ratio do you need for a HELOC?
Can I get a HELOC with 10% equity?
Only from a lender whose CLTV limit is 90% or higher and only for a small line, since 10% equity at a 90% limit leaves no room for a line at all. Most lines need equity above 15–20%.
Sources
- What You Should Know About Home Equity Lines of Credit (HELOC)
- What you should know about home equity lines of credit (booklet)
- Home Equity
- Home Equity Loans and Home Equity Lines of Credit
- Credit Risk Management Guidance for Home Equity Lending (interagency guidance, SR 05-11)
- B2-1.2-03, Home Equity Combined Loan-to-Value (HCLTV) Ratios (Selling Guide)
- B3-6-02, Debt-to-Income Ratios (Selling Guide)
- Regulation Z § 1026.40, Requirements for home equity plans
- Regulation Z § 1026.15, Right of rescission (open-end credit)