Banks check three things: how much equity you have in your home, your credit score, and your income

A HELOC (home equity line of credit) lets you borrow against the value you have built up in your house. To get one, lenders need to see that you own enough of the home outright, that you pay your bills on time, and that you earn enough to handle the payments. There is no single score or income threshold that works everywhere — different banks set different minimums — but the basic picture lenders look at is always the same.

The process starts with your lender ordering an appraisal of your home to find out what it is worth today. They subtract what you still owe on your mortgage from that value. The difference is your equity. Most lenders will let you borrow up to 80 or 85 percent of that equity, though some go higher or lower. If your home is worth $300,000 and you owe $200,000, you have $100,000 in equity. A lender offering 80 percent would let you borrow up to $80,000.

Key Takeaways

  • You need at least 15 to 20 percent equity in your home to be considered by most lenders, though some require more.
  • Your credit score matters more for a HELOC than for a mortgage because the lender has less security if you default.
  • Lenders will verify your income and check your debt-to-income ratio, which compares your monthly debt payments to your monthly income.
  • The appraisal, credit check, and income verification take two to four weeks, and you pay for the appraisal whether you are approved or not.

How much equity you need

Most lenders want to see at least 15 to 20 percent equity before they will consider you. Some require 25 percent or more. The reason is straightforward: if you stop paying and they have to foreclose, they want enough cushion to cover the sale costs and still get their money back.

You can find your equity by taking your home's current value and subtracting your mortgage balance. If you do not know the current value, you can check recent sales of similar homes in your area on Zillow or Redfin, or ask a real estate agent for a rough estimate. Your mortgage statement shows what you owe. The appraisal the lender orders will give you the official number, but you can do this math yourself first to see whether explore makes sense.

If you are close to the threshold but not quite there, you have two options: wait until you have paid down your mortgage further, or look for a lender with a lower equity requirement. Some credit unions and online lenders accept 10 percent equity, though they may charge higher interest rates.

Credit score and payment history

Lenders typically want a credit score of 620 or higher, but most prefer 700 or above. The reason a HELOC is stricter than a mortgage is that your house secures a mortgage — if you do not pay, the lender takes the house. A HELOC is less find, so lenders charge higher rates and demand better credit to offset the risk.

Your credit report matters as much as your score. The lender will look at whether you have missed payments, how recently, and how often. A single late payment from five years ago is usually not a deal-breaker. Multiple late payments in the last two years will likely disqualify you. Charge-offs, collections, or a recent bankruptcy are harder to overcome, though some lenders will work with you if enough time has passed.

If your score is below 700, you can still explore, but expect a higher interest rate and possibly a requirement to put down more equity upfront. Some lenders will not work with scores below 650 at all.

Income and debt-to-income ratio

Lenders want proof that you earn enough to handle the HELOC payment on top of your other debts. They calculate your debt-to-income ratio by adding up all your monthly debt payments — mortgage, car loans, credit cards, student loans, and the new HELOC payment — and dividing by your gross monthly income.

Most lenders want this ratio to be 43 percent or lower, though some go up to 50 percent. If you earn $5,000 a month gross and your total debt payments would be $2,000, your ratio is 40 percent. The HELOC payment is estimated based on the amount you are borrowing and the current interest rate.

You will need to provide recent pay stubs, tax returns, and possibly bank statements to prove your income. If you are self-employed, the lender will ask for two years of tax returns. If you receive income from Social Security, pensions, or investments, bring documentation of those too. The lender will verify employment by contacting your employer directly.

What the lender will check about your home

Beyond equity, the lender needs to know the home is in acceptable condition and that you actually own it. They will order a title search to confirm no other liens or claims are against the property. They will also order an appraisal, which costs $300 to $700 depending on your area and the home's complexity. You pay this fee upfront, and most lenders do not refund it if you are denied.

The appraisal serves two purposes: it establishes the current market value of your home, and it gives the lender a sense of whether the property is in good enough shape to hold its value. Major structural problems, foundation issues, or a roof near the end of its life can lower the appraisal or cause denial.

If you have a second mortgage or other lien against the home, the lender will need to know about it. Some lenders will work with you if a second lien exists; others will not. If you do have a second mortgage, you will need the lender's permission to open a HELOC, and they may require it to be paid off first.

How long the process takes and what it costs

From process to approval usually takes two to four weeks. The lender needs time to order the appraisal, verify your employment and income, pull your credit report, and review everything. Some online lenders move faster, sometimes in one to two weeks, but they may charge higher rates.

Costs vary by lender. Most charge an process fee ($0 to $300), an appraisal fee ($300 to $700), and possibly a title search fee ($100 to $300). Some waive the process fee if you meet certain criteria. A few lenders charge an annual fee to keep the HELOC open, even if you do not use it. Ask about all fees before you explore.

Once you are approved, the lender will send you documents to sign. You will have a right to review the terms for three business days before closing. After closing, you can usually start drawing on the line within a few days.

What happens if you are denied

If a lender denies you, they must send a written explanation. Common reasons are insufficient equity, a credit score below their minimum, a debt-to-income ratio that is too high, or a recent major delinquency. If the reason is something you can fix — like paying down credit card balances to lower your debt-to-income ratio — you can reapply after making that change.

If equity is the issue, you will need to wait until your home appreciates or you pay down your mortgage further. If credit is the problem, focus on making all payments on time for at least six months before reapplying. Different lenders have different standards, so a denial from one does not mean another will deny you. Credit unions and online lenders sometimes have more flexible requirements than traditional banks.

Frequently Asked Questions

Do I need a perfect credit score to get a HELOC?

No. Most lenders approve scores of 700 or higher, but some work with scores as low as 620. Below 700, you will likely pay a higher interest rate. Recent late payments or collections are harder to overcome than older negative marks.

Can I get a HELOC if I still owe a lot on my mortgage?

Yes, as long as you have at least 15 to 20 percent equity. If your home is worth $400,000 and you owe $320,000, you have $80,000 in equity and can likely borrow against it even though you still owe most of the purchase price.

What if my income is irregular or I am self-employed?

Lenders will ask for two years of tax returns to average your income. If your income has been declining, they may use a lower figure for qualification. Some lenders require self-employed applicants to have higher credit scores or more equity to offset the income uncertainty.

Do I have to use the HELOC right away after approval?

No. Once approved, you have a line of credit available whenever you need it. You only pay interest on the amount you actually borrow, not on the full approved amount. Some lenders charge an annual fee to keep the line open even if unused.

What if my home value drops after I am approved?

The lender cannot take back the approval based on a future drop in value. However, if you have not closed yet and a new appraisal shows lower value, the lender may reduce the amount you can borrow or deny the process.