The minimum equity requirement for a HELOC is usually 15 to 20 percent of your home's current value, but most lenders want you to have at least 20 percent

A HELOC (home equity line of credit) lets you borrow against the difference between what your home is worth and what you still owe on your mortgage. Lenders set a minimum equity threshold because they need cushion if your home value drops or you stop paying. That threshold is typically 15 to 20 percent, though some lenders go as low as 10 percent and others require 25 percent or more.

The amount you can actually borrow depends on how much equity you have above that minimum. If your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity. If a lender requires 20 percent equity ($60,000) and lets you borrow up to 80 percent of your home's value, you could borrow up to $240,000 minus your $200,000 mortgage balance — or $40,000. The exact number varies by lender and by how much of your equity they're willing to lend against.

Key Takeaways

  • Most lenders require you to have between 15 and 20 percent equity in your home before they will offer a HELOC, though some require as much as 25 percent.
  • Your borrowing limit is usually 80 to 90 percent of your home's current value, minus what you still owe on your first mortgage.
  • You calculate your equity by subtracting your mortgage balance from your home's current market value, not the price you paid for it.
  • If you have less than 15 percent equity, you may still find lenders willing to work with you, but you will pay higher interest rates and may face stricter terms.
  • Your credit score, income, and debt-to-income ratio also affect whether a lender will approve you and how much you can borrow.

How lenders calculate the equity you need

Lenders use your home's current market value, not the price you paid for it. They typically order an appraisal or use an automated valuation model to determine this value. If your home was worth $250,000 when you bought it but is now worth $350,000, lenders use $350,000 as the basis for calculating how much you can borrow.

Once they know your home's value, they subtract what you still owe on your mortgage. If you owe $200,000 on a $350,000 home, you have $150,000 in equity. Most lenders will let you borrow against 80 to 90 percent of your home's value. At 80 percent, that's $280,000. Subtract your $200,000 mortgage, and you could borrow up to $80,000 through a HELOC — assuming you meet the lender's minimum equity requirement.

The minimum equity requirement sits on top of this calculation. If a lender requires 20 percent equity and your home is worth $350,000, you must have at least $70,000 in equity before they will even consider you. If you have exactly $70,000 in equity, you may not be able to borrow the full amount the 80 percent rule would allow, because the lender needs to keep some cushion.

What happens if you have less than 15 percent equity

Having less than 15 percent equity does not automatically disqualify you, but it narrows your options. Some lenders specialize in high-equity-requirement HELOCs and will work with borrowers who have 10 to 15 percent equity. The trade-off is usually a higher interest rate, a smaller credit line, or both.

You may also encounter stricter requirements on other fronts: a higher credit score (often 700 or above), a lower debt-to-income ratio, or proof of stable income. Some lenders will require a co-signer or will ask you to put down a cash deposit to offset the risk.

If you cannot find a HELOC with low equity, a home equity loan (a one-time lump sum rather than a line of credit) may be easier to obtain, though the terms will still be less favorable than if you had more equity. A cash-out refinance of your mortgage is another route, though it replaces your entire mortgage and may not make sense if your current rate is low.

How to find out how much equity you have

Start with your mortgage statement, which shows your current loan balance. Then find your home's current market value. You can use online tools like Zillow or Redfin for a rough estimate, but lenders will order a professional appraisal, which costs $300 to $500 and takes one to two weeks. Some lenders offer free or low-cost appraisals as part of the HELOC application process.

Subtract your mortgage balance from your home's value. If your home is worth $400,000 and you owe $280,000, you have $120,000 in equity. Divide that by your home's value ($120,000 ÷ $400,000) to get your equity percentage: 30 percent. Most lenders will work with you at that level.

If you are not sure of your home's current value, contact a local real estate agent and ask for a comparative market analysis (CMA). This is free and takes a few days. It is less formal than an appraisal but gives you a solid ballpark figure to work with before you apply.

Other factors lenders look at besides equity

Equity is necessary but not sufficient. Lenders also evaluate your credit score, income, employment history, and existing debt. A credit score below 620 will disqualify you at most mainstream lenders, though some credit unions and portfolio lenders (banks that hold their own loans) will go lower. A score of 700 or above opens more options and usually gets you a better rate.

Your debt-to-income ratio — the percentage of your monthly income that goes to debt payments — matters as well. Most lenders want this ratio to be 43 percent or lower. If you earn $5,000 a month and already pay $2,000 toward car loans, credit cards, and your mortgage, adding a HELOC payment that pushes you over 43 percent will likely disqualify you.

Lenders also want to see stable income for at least two years. If you recently changed jobs, started a business, or had a gap in employment, you may face delays or higher rates. Some lenders require tax returns, pay stubs, and bank statements to verify income; others use automated verification systems.

How much you can actually borrow with your equity

The amount you can borrow is not the same as the amount of equity you have. If you have $100,000 in equity, you cannot necessarily borrow $100,000. Most lenders cap your total borrowing at 80 to 90 percent of your home's value, minus what you owe on your first mortgage.

Here is a concrete example: Your home is worth $400,000. You owe $250,000 on your mortgage. You have $150,000 in equity. A lender using an 80 percent loan-to-value (LTV) limit will let you borrow up to $320,000 total (80 percent of $400,000). Subtract your $250,000 mortgage, and your HELOC limit is $70,000 — not the full $150,000 in equity you have.

A lender using a 90 percent LTV will let you borrow up to $360,000 total, giving you a $110,000 HELOC limit. The difference between 80 and 90 percent LTV can be $20,000 to $40,000 or more, depending on your home's value. Shop around, because different lenders use different LTV caps.

Frequently Asked Questions

Can I get a HELOC if I have less than 10 percent equity?

Most mainstream lenders will not work with you below 10 percent equity. Some credit unions and online lenders may, but expect higher interest rates, smaller credit limits, and stricter income or credit score requirements. A home equity loan or cash-out refinance may be easier to obtain in this situation.

Does my credit score affect how much equity I need?

Not directly — the equity requirement is usually the same for all borrowers. However, a lower credit score can make lenders more cautious about lending to you at all, and they may require higher equity as a way to reduce their risk. A score below 620 often means you will be turned down regardless of equity.

What if my home value drops after I open a HELOC?

Your existing HELOC will not be cancelled, but the lender may freeze your credit line or reduce how much you can borrow going forward. If your home drops significantly in value and you owe more than it is worth, the lender may close the account when the draw period ends.

Can I use a HELOC if I have a second mortgage?

Yes, but it complicates the calculation. Your equity is still your home's value minus all mortgages you owe. A HELOC lender will want to know about the second mortgage and will factor it into how much they let you borrow. Some lenders will not work with you if a second mortgage already exists.

How long does it take to learn about I have enough equity?

You can get a rough estimate in minutes using online valuation tools and your mortgage statement. A formal appraisal takes one to two weeks and costs $300 to $500. Many lenders order the appraisal only after you submit an application, so you do not pay upfront.