Your borrowing limit depends on your home's equity and your lender's rules

A HELOC (home equity line of credit) lets you borrow against the equity you have built in your home. The maximum you can borrow is not set by law — it depends on three things: how much equity you own, what your lender will allow, and your credit and income. Most lenders will let you borrow 80 to 90 percent of your home's total value, minus what you still owe on your mortgage. If your home is worth $300,000 and you owe $150,000 on your mortgage, you have $150,000 in equity. A lender offering 80 percent of home value would let you borrow up to $90,000 through a HELOC (80% of $300,000 = $240,000, minus the $150,000 mortgage = $90,000 available).

The actual amount a lender will approve you for also depends on your credit score, income, and debt-to-income ratio. A lender wants to see that you can afford to repay what you borrow. If your credit score is lower or your income is tight, the lender may offer you a smaller line of credit than the math on your home's equity would allow. Some lenders also set their own caps — for example, refusing to lend more than $500,000 or $1 million on a single HELOC, regardless of equity.

Key Takeaways

  • Most lenders let you borrow between 80 and 90 percent of your home's value, minus what you owe on your mortgage.
  • Your actual borrowing limit also depends on your credit score, income, and how much debt you already carry.
  • You do not have to borrow the full amount your lender approves — you can draw only what you need and pay interest only on what you use.
  • The amount you can borrow may be lower if you have a second mortgage, a home equity loan, or other liens on your property.

How lenders calculate the maximum you can borrow

Lenders use a formula based on your home's current market value and your existing mortgage balance. They order an appraisal or use an automated valuation to determine what your home is worth today. They then apply a loan-to-value (LTV) ratio — usually 80 percent or 90 percent — to that value. The result is the total amount they will lend against your home. Subtract what you still owe on your first mortgage, and the remainder is what you can borrow through a HELOC.

Example: Your home is appraised at $400,000. Your first mortgage balance is $200,000. A lender using an 80 percent LTV will lend up to $320,000 total against the home ($400,000 × 0.80). You already owe $200,000, so your HELOC limit is $120,000. If the same lender uses a 90 percent LTV, they will lend up to $360,000 total, leaving you $160,000 available through a HELOC.

Different lenders use different LTV ratios. Some are more conservative and stick to 80 percent; others go to 85 or 90 percent. A few will go higher, especially if your credit is strong. Shopping around and asking lenders directly what LTV they use is the only way to know what each one will offer you.

How your credit score and income affect your borrowing limit

Even if the math on your home's equity says you can borrow $150,000, a lender may approve you for less if your credit score is low or your income does not support the debt. Lenders look at your debt-to-income ratio — the total of all your monthly debt payments (mortgage, car loans, credit cards, student loans) divided by your gross monthly income. Most lenders want this ratio to be 43 percent or lower, though some will go higher for borrowers with strong credit.

If you earn $5,000 a month and already pay $1,500 in monthly debt payments, your current ratio is 30 percent. A HELOC with a $150,000 limit might add $300 to $400 a month in potential payments (depending on interest rates and how you draw the money). That could push your ratio to 36 to 38 percent — still acceptable to most lenders. But if you already carry $2,000 in monthly debt payments, adding a HELOC could push you over the lender's limit, and they may reduce the line they offer you.

Credit score also matters. Borrowers with scores above 740 typically get the best rates and the highest LTV ratios. Scores between 680 and 740 may still may have access to, but at higher rates or lower LTV limits. Scores below 680 may face rejection or very limited borrowing amounts.

Other debts and liens that reduce what you can borrow

If you have a second mortgage or a home equity loan already in place, the lender will subtract that balance from your available equity. The same applies to any other lien on your home — a tax lien, a judgment lien, or a contractor's lien. These all reduce the amount you can borrow through a new HELOC.

Example: Your home is worth $300,000 and you owe $150,000 on your first mortgage. You also have a home equity loan with a $30,000 balance. Your available equity is $120,000 ($300,000 − $150,000 − $30,000). A lender using an 80 percent LTV will only let you borrow up to $90,000 total against the home, minus the $30,000 you already borrowed, leaving $60,000 available through a new HELOC.

If you have a tax lien or judgment against you, you may not be able to open a HELOC at all until that lien is paid off or released. Some lenders will work with you if the lien is small and you agree to pay it from the HELOC proceeds, but this is not standard practice.

The difference between your credit limit and what you actually owe

A HELOC works like a credit card: your lender approves you for a maximum amount, but you do not have to borrow it all at once. During the draw period (usually 5 to 10 years), you can borrow, repay, and borrow again as you need the money. You only pay interest on the amount you actually use, not on the full credit limit.

If your HELOC limit is $100,000 but you only draw $30,000, you pay interest only on that $30,000. This is one reason HELOCs can be cheaper than other loans — you are not paying for money you do not use. However, it also means you need discipline: the money is available whenever you want it, and it is easy to borrow more than you planned.

Once the draw period ends, you enter the repayment period (usually 10 to 20 years). You can no longer draw new money, and you must repay what you borrowed, usually in fixed monthly payments. Some lenders require you to start repaying principal during the draw period as well, so ask about this before you sign.

When your home's value drops and your borrowing limit shrinks

If your home's value falls, your available equity falls with it, and your lender may reduce your credit limit. This happened to many homeowners during the 2008 housing crisis. A home worth $300,000 with $150,000 in equity can suddenly be worth $250,000, cutting your equity to $100,000. Your lender may freeze your HELOC, reduce your limit, or demand that you repay part of what you have already borrowed.

Some lenders also have the right to freeze or reduce your HELOC if your credit score drops, if you miss payments, or if the economy enters a downturn. Read your HELOC agreement carefully to understand what triggers these actions. If you have already drawn money from your HELOC, a frozen line does not force you to repay it immediately — you still have the draw and repayment periods you agreed to. But you cannot borrow any more.

Frequently Asked Questions

Can I borrow the full amount my lender approves?

Yes, but you do not have to. You can draw only what you need during the draw period and leave the rest unused. You pay interest only on what you actually borrow, so leaving money undrawn saves you money.

What if I have bad credit — can I still get a HELOC?

It depends on the lender and how bad your credit is. Some lenders work with credit scores as low as 620, but they may offer a lower credit limit or a higher interest rate. Credit unions and some banks are more flexible than large national lenders. You may also need a co-borrower with stronger credit.

Does the amount I can borrow change over time?

Yes. If your home's value rises, your available equity rises, and your lender may increase your credit limit. If your home's value falls or your credit score drops, your limit may shrink. Some lenders review your limit once a year; others only when you ask.

What happens if I borrow money and then lose my job?

You are still responsible for repaying what you borrowed. Your lender may freeze your line so you cannot borrow more, but you must continue making payments on what you have already drawn. If you cannot pay, your lender can foreclose on your home.

Can I use a HELOC to pay off credit card debt?

Yes, and it often makes financial sense because HELOC rates are usually lower than credit card rates. However, you are putting your home at risk — if you cannot repay the HELOC, the lender can foreclose. Make sure you have a plan to avoid running up credit card debt again after you pay it off.