If you’re a homeowner looking for flexible financing options, a Home Equity Line of Credit (HELOC) can be an excellent solution. This can be helpful if you’re planning a major renovation, paying for college tuition, or consolidating debt.
A HELOC allows you to tap into the equity you've built in your home. But a common question many people ask is: how much can you actually borrow with a HELOC?
The answer depends on a few key factors, including the value of your home, how much you still owe on your mortgage, and your financial profile. Let’s break it down so you can understand your borrowing potential.
What Is a HELOC?
A HELOC, or Home Equity Line of Credit, is a credit line that lets you borrow against the equity in your home. Unlike a home equity loan, which gives you a lump sum, a HELOC works more like a credit card.
You get access to a credit line that you can draw from as needed during a draw period, typically 10 years. After that, you'll enter a repayment period, often lasting 10 to 20 years.
Because the loan is secured by your home, interest rates on HELOCs are usually lower than those on credit cards or personal loans.
With providers like Amerisave, you go with 10-year interest-only period to help you manage your monthly payments and other finances accordingly.
How Much Can You Borrow?
Most lenders allow you to borrow up to 85% of your home’s appraised value, minus what you owe on your existing mortgage. This is called your loan-to-value ratio (LTV).
Here’s a basic formula to estimate your HELOC limit:
(Appraised Home Value × 85%) – Current Mortgage Balance = Maximum HELOC Amount
Example:
Your home is worth $400,000
85% of $400,000 is $340,000
Your current mortgage balance is $250,000
Your estimated HELOC limit: $340,000 – $250,000 = $90,000
Of course, this is just an estimate. Lenders will also evaluate your credit score, debt-to-income ratio, employment history, and overall financial stability before approving the amount.
Factors That Affect Your HELOC Limit
While your home’s value and mortgage balance play the biggest roles, other personal financial details can influence your borrowing power:
- Credit Score: Most lenders require a minimum credit score of 620, but a higher score (700+) may qualify you for a larger line of credit and better terms.
- Debt-to-Income Ratio (DTI): Lenders prefer a DTI under 43%. This helps them assess whether you can handle additional debt responsibly.
- Income and Employment: Proof of steady income gives lenders confidence that you can repay what you borrow.
- Property Type: Single-family homes tend to qualify for higher HELOC limits than condos, second homes, or investment properties.
Can You Increase Your Borrowing Power?
If you’re not happy with your initial HELOC offer, there are a few things you can do. First of all, you should make extra mortgage payments to increase your equity.
After this, you will have to improve your credit score by paying down debts and correcting credit report errors. And lastly, if you cannot do anything, just wait for your property’s value to rise, especially in a strong housing market.
