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How Much Equity Do I Need for a HELOC?


If you're considering tapping into your available home equity, you're probably wondering how much money you can get, how a home equity line of credit (HELOC) works, and what the requirements are. Every lender has their own HELOC guidelines. Although these rules may be similar, they can still vary from lender to lender. Read on to find out what size loan you may be able to get, how long the process takes, and what the other key qualifications are.

How does a HELOC work?

A HELOC is a "line of credit" that you use as needed. It is secured by the equity you have in your home. The minimum loan amount is $25,000 and the maximum is $500,000. This type of loan is different from a home equity loan (or what some call a "second mortgage"), where you receive a lump sum with a fixed monthly payment.

One advantage of a HELOC is you only pay interest during the 10-year draw period. You can also switch from a variable interest to fixed on some or all of your line of credit. Additionally, you only take out what you need. For example, maybe you want to remodel your kitchen this year and add a pool next year. In that case, wait to finance the pool until next year. That way, you're only paying interest on the money you're using.

Just like with any mortgage, rates may be lower for owner-occupied homes versus non-owner-occupied homes. This may vary from lender to lender. Your rate might also depend on how much equity you have and your credit score. But you will need at least 20% equity.

How much equity for a HELOC?

Depending on your lender, some HELOCs may go up to 90% of the appraised value for a home you're living in. Here's an example:

  • $400,000 home appraised value minus
  • $200,000 current mortgage (no other mortgage liens)
  • Equity = $200,000


  • $400,000 appraised value multiplied by
  • 90%
  • Maximum amount of all loans combined = $360,000

Since you already have a loan for $200,000, the maximum HELOC you could get would be $160,000.

Here's a quick money-saving tip on the appraisal. Don't order one yourself. Your lender will do that. Lenders are not able to use any appraisal ordered by the borrowers. So, you would be wasting your money.

How do I qualify for a HELOC?

HELOC requirements are similar to getting a mortgage. The lender will look at your income, debts, credit, assets, and the value of your home. But some of the significant benefits of a home equity line of credit is that it's generally faster, the closing costs are normally less, and there's likely less for you to do than when you're getting a  mortgage to purchase a home.

Your credit score and type of property also determines how much you can borrow. Here is an example of how your credit score makes a difference in how much you can borrow.

Note: These are PenFed's requirements — each lender has their own, so make sure you find out the exact requirements for the lender you use.

If your score is more than 720, you can borrow:

  • Up to 80% on a single-family home
  • Up to 80% for a condo

If your score is less than 720, you can borrow:

  • Up to 80% for a single-family home (except for Texas, where you can only borrow up to 75%)
  • Up to 75% for a condo

The minimum credit score for a HELOC is 660.

Debt to Income for a HELOC

The maximum debt to income (DTI) varies for each lender. For PenFed, the maximum DTI may go to 50%. That includes your monthly mortgage payment, student loans, credit card (minimum payments), personal bank loans, and auto loans — whatever shows up on your credit report.

Here's an example of DTI:

  • $2000 monthly debts divided by
  • $8000 monthly income
  • DTI = 25%

How long does it take to get a HELOC?

Another significant advantage of a HELOC is that you can have access to your funds sooner. Comparing a HELOC to a mortgage refinance — a HELOC is generally faster. With a cash-out refinance, you're going through the same process as when you originally obtained your mortgage. Keep in mind, the average time for a HELOC can vary. It's always best to check with your lender to see what the turn-around is.

One way you can help move the process along is to submit any required documentation quickly.

The speed of a HELOC also depends upon the application's complexity. During peak real estate season, make sure the appraisal gets scheduled right away because appraisers get busy. Compared to getting a mortgage or refinance — a HELOC can sometimes be a faster and simpler solution for you, as the borrower. Always do your research to figure out what is best for your financial situation.

To learn more about a PenFed HELOC or what loan is right for you:

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