Key Takeaways
- Most HELOCs require 15 to 20 percent equity, meaning your home must be worth at least 20 to 25 percent more than what you owe on your mortgage.
- Lenders calculate equity by subtracting your mortgage balance from your home's current market value, not the price you paid.
- A lower credit score or recent missed payments can push the minimum equity requirement up to 25 or 30 percent.
- Some lenders will lend against 10 percent equity, but charge higher rates and require stronger income documentation.
- Your home's value matters as much as the percentage — a lender may deny you if the equity amount is too small in dollar terms, even if the percentage is high enough.
How Lenders Calculate the Equity You Have
Equity is the difference between what your home is worth right now and what you still owe on your mortgage. If your home is worth $400,000 and you owe $300,000, you have $100,000 in equity — or 25 percent of the home's value.
Lenders use your home's current market value, not what you paid for it or what a tax assessor says it is worth. Most will order an appraisal or use an automated valuation model (AVM) to estimate the value themselves. If your home has gone up in value since you bought it, you may have more equity than you think. If the market has softened in your area, you may have less.
The lender then applies a loan-to-value ratio, or LTV. If a lender will lend up to 80 percent LTV, they will lend you money up to 80 percent of the home's appraised value. Subtract what you still owe on your first mortgage, and what remains is the amount you can borrow on a HELOC. If your home is worth $400,000 and you owe $300,000, an 80 percent LTV lender will lend up to $320,000 total — meaning you can borrow $20,000 on the HELOC.
Why Lenders Set Minimum Equity Requirements
The equity requirement protects the lender, not you. If you stop paying and the lender forecloses, they sell the home to recover their money. If you have little equity, the sale price may not cover both the first mortgage and the HELOC. The lender wants a cushion.
A 15 to 20 percent equity minimum means the lender is comfortable lending up to 80 or 85 percent of the home's value. If your credit is strong and your income is stable, some lenders will go higher. If you have missed payments, a recent bankruptcy, or a low credit score, lenders will require more equity — sometimes 25 to 30 percent — to offset the risk.
How Your Credit Score Affects the Equity You Need
A credit score above 740 usually qualifies you for the lender's standard equity requirement, often 15 to 20 percent. Scores between 680 and 740 may require 20 to 25 percent. Below 680, many lenders will ask for 25 to 30 percent or decline you entirely.
Recent late payments, collections, or a bankruptcy within the last two to three years will also push the requirement up, even if your current score is decent. A lender may tell you that you need 25 percent equity when the standard is 20 percent, because of the late payment history. This is not a rule — it is the lender's risk assessment — so shopping with multiple lenders can matter.
Minimum Loan Amounts and Why They Matter
Even if you have enough equity as a percentage, some lenders will not open a HELOC if the available credit is too small. A lender might require a minimum of $10,000 or $15,000 available to borrow. If your home is worth $250,000 and you owe $220,000, you have $30,000 in equity — a healthy 12 percent — but only $5,000 available to borrow at an 80 percent LTV. Many lenders will turn you down because the loan is too small to be profitable.
This is one reason why homeowners in lower-value markets sometimes cannot get a HELOC even though they have enough equity as a percentage. The dollar amount matters as much as the percentage.
What Happens If You Do Not Have Enough Equity
If you are short of the lender's minimum, you have a few options. You can wait for your home to appreciate or for your mortgage balance to drop through regular payments. You can shop with lenders that have lower equity requirements — credit unions sometimes lend at 90 percent LTV, for example — though rates will be higher. You can also consider a home equity loan instead of a HELOC, as some lenders have slightly lower equity minimums for loans.
A cash-out refinance is another route if you have enough equity to refinance your first mortgage and pull out cash at the same time. This replaces your existing mortgage with a new one, so it works only if the new rate is acceptable and you can afford the closing costs.
How to Find Out Your Equity Right Now
Start with your mortgage statement, which shows your current balance. Then estimate your home's value using online tools like Zillow or Redfin, or by looking at recent sales of similar homes in your neighborhood. Subtract the balance from the value, and you have a rough equity figure.
This estimate is not what a lender will use — they will order their own appraisal or valuation — but it tells you whether you are in the ballpark. If you are close to the lender's minimum, get a professional appraisal before you apply. If you are well above it, you can move forward with confidence.
Frequently Asked Questions
Can I get a HELOC with 10 percent equity?
Some lenders will lend at 90 percent LTV, which means 10 percent equity is technically enough. However, these lenders charge higher interest rates and require strong credit and income documentation. Most mainstream lenders start at 15 to 20 percent equity.
Does my home's appraised value or tax value count?
Lenders use the home's current market value, which they determine through an appraisal or automated valuation model. Tax assessments are usually lower and do not count. Your purchase price does not count either.
What if my home value dropped since I bought it?
Your equity is based on the current value, not what you paid. If your home is worth less than your mortgage balance, you have negative equity and cannot open a HELOC. You would need to wait for the market to recover or pay down the mortgage.
Do I need 20 percent equity, or can I borrow with less?
Twenty percent is common but not universal. Lenders range from 10 to 30 percent depending on credit, income, and their own risk appetite. Call a few lenders to find out their specific requirement before you apply.
If I have 30 percent equity, can I borrow all of it?
No. Most lenders will lend up to 80 or 85 percent of your home's total value, not 100 percent. If your home is worth $400,000 and you owe $200,000, you have 50 percent equity, but an 80 percent LTV lender will only lend up to $320,000 total — meaning $120,000 available on the HELOC, not $200,000.