The main things lenders check before approving a HELOC

Lenders decide whether to give you a HELOC based on three things: how much equity you have in your home, your credit score and payment history, and your income relative to your existing debt. You do not need perfect credit or a six-figure salary, but lenders want to see that you can borrow against your home without defaulting. The specific thresholds vary by lender — some will work with a credit score in the 600s, while others want 700 or higher — so shopping around matters.

The process is faster than a mortgage because the lender already knows your home's value from your original purchase or a recent appraisal. Most lenders can give you a yes or no within a week, though funding takes longer. You will need to provide recent pay stubs, tax returns, and a bank statement, but not much else.

Key Takeaways

  • Lenders require you to have at least 15 to 20 percent equity in your home, though some will go lower, and they calculate this by comparing your current mortgage balance to your home's current value.
  • Your credit score matters, but it is not the only factor — lenders also look at whether you have missed payments in the past two years and how much of your available credit you are already using.
  • Your debt-to-income ratio (the percentage of your monthly income that goes to debt payments) usually needs to be below 43 to 50 percent, depending on the lender.
  • You will need to prove your income with recent pay stubs or tax returns, and lenders may order a new appraisal to confirm your home's current value.
  • The interest rate you receive depends on your credit score and the lender's current rates, so comparing offers from at least three lenders usually saves money.

How much home equity you need

Most lenders want you to keep at least 15 to 20 percent equity in your home after you open the HELOC. This means if your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity. A lender requiring 20 percent equity would let you borrow up to $40,000 (keeping $60,000 in equity). Some lenders will go down to 10 percent equity, but they typically charge higher interest rates to offset the risk.

The lender will order an appraisal or use an automated valuation model to determine your home's current value. If your home has appreciated since you bought it, you have more borrowing power. If the market has declined in your area, you may have less equity than you think. You can ask the lender what valuation method they use before paying for an appraisal.

Credit score and payment history requirements

Most lenders want a credit score of at least 680 to 700, though some will work with scores as low as 620. Your score matters, but lenders also look at what caused any dips. A single missed payment from five years ago is less concerning than multiple late payments in the past two years. If you have missed a mortgage payment, that is a bigger red flag than a late credit card payment.

Lenders also check how much of your available credit you are using. If you have $10,000 in available credit and you are using $9,000 of it, that signals financial stress. Paying down credit card balances before you explore can improve your chances and may lower the interest rate you receive. You can check your credit report for free at annualcreditreport.com and dispute any errors before explore.

Income and debt-to-income ratio

Lenders want to see that your monthly debt payments (mortgage, car loans, student loans, credit cards, and the new HELOC payment) do not exceed 43 to 50 percent of your gross monthly income. If you earn $5,000 per month and your current debt payments total $2,000, you are at 40 percent. Adding a HELOC payment of $200 would bring you to 44 percent, which most lenders will accept.

You will need to provide recent pay stubs (usually the last two months) and your last two years of tax returns. If you are self-employed, lenders typically want to see two years of tax returns and may ask for profit-and-loss statements. If your income varies significantly, lenders often average it over two years. Bonus income, commission, or rental income can count, but you usually need to show it for at least two years to include it.

Employment and income verification

Lenders verify your employment by contacting your employer or checking employment verification services. They want to confirm you are still employed and that your income matches what you stated on the process. If you recently changed jobs, bring an offer letter or employment contract showing your new salary. Lenders are usually comfortable with job changes as long as you are in the same field and your income stayed the same or increased.

If you are retired and living on Social Security or pension income, that counts as verifiable income. Bring your Social Security statement or pension documentation. If you receive investment income or rental income, you will need to show tax returns proving that income for at least two years.

Home appraisal and property condition

The lender will order an appraisal to confirm your home's value and check its condition. The appraiser looks at comparable sales in your area, the age and condition of your home, and any major repairs needed. A home in poor condition or needing a new roof may appraise lower than you expect. If the appraisal comes in lower than you hoped, you have less equity to borrow against.

You can ask the lender what the appraisal cost is upfront — it typically ranges from $300 to $700 depending on your home's value and location. Some lenders waive the appraisal fee if you are approved, while others charge it regardless. If the appraisal is lower than expected, you can request a second appraisal, though you will usually pay for it yourself.

Comparing offers from multiple lenders

Different lenders have different credit score requirements, equity minimums, and interest rates. A bank may require a 700 credit score and 20 percent equity, while a credit union might accept 650 and 15 percent equity. Interest rates also vary — one lender might offer 8.5 percent while another offers 9.2 percent. Over the life of a HELOC, a 0.7 percent difference can cost thousands of dollars.

Get quotes from at least three lenders before deciding. Most lenders can give you a rate quote without a hard credit inquiry, so you can compare without damaging your credit score. Once you choose a lender and they pull your credit report, that counts as one hard inquiry. Multiple inquiries within 14 to 45 days (depending on the credit scoring model) usually count as one inquiry, so shopping around in a short window minimizes the impact on your score.

Frequently Asked Questions

Can I get a HELOC if I have bad credit?

Some lenders will work with credit scores in the 600s, but you will likely pay a higher interest rate and may need more equity in your home. Credit unions and some online lenders are often more flexible than traditional banks. Paying down credit card balances and correcting errors on your credit report before you explore can improve your chances.

What if I just bought my home and do not have much equity yet?

Most lenders want at least 15 to 20 percent equity, which typically takes several years to build. If you put down 20 percent or more at purchase and your home has appreciated, you may have enough. If not, waiting a year or two while you pay down your mortgage and your home appreciates will increase your equity.

Do I need a perfect payment history to be approved?

No, but recent missed payments hurt more than old ones. A missed payment from five years ago is less concerning than one from six months ago. If you have missed payments, explain what happened — a temporary job loss or medical emergency is more understandable than chronic late payments.

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

Lenders typically average self-employed income over two years and want to see tax returns proving that income. If your income has grown significantly, bring documentation showing the trend. Some lenders are stricter about self-employed borrowers, so shopping around is especially important.

How long does the approval process take?

Most lenders can give you a conditional approval within three to five business days. The full approval, including appraisal and final verification, usually takes one to two weeks. Funding (when you actually receive the money or the credit line opens) can take another week or two after that.