HELOC and home equity loan requirements in 2025

One of the biggest benefits of homeownership is the ability to build equity. When you accumulate enough, typically over time by paying down your mortgage, you can borrow against it through a home equity loan or home equity line of credit (HELOC).

Requirements for a home equity loan or HELOC

Regardless of which type of loan you choose, home equity loan requirements and HELOC requirements tend to require that borrowers have:

• A minimum percentage of equity in the home
• Good credit
• A low debt-to-income (DTI) ratio
• Sufficient income
• Reliable payment history

At least 20% equity in your home

Equity is the difference between how much you owe on your mortgage and your home’s value. This determines your loan-to-value ratio, or LTV.

To find your LTV, divide your current mortgage balance by your home’s appraised value. For example, if your loan balance is $150,000 and an appraiser values your home at $450,000, you would divide the balance by the appraisal for an LTV ratio of about 33%. This means you have 67% equity in your home.

When you apply this ratio to both your first mortgage and the HELOC or home equity loan, you get the combined loan-to-value (CLTV) ratio. This is the figure lenders use to determine how much equity you could be eligible to tap. Most lenders require you to maintain a minimum of 20% equity — to leave that amount untouched, that is — although some allow 15%.

Using the example above, say you’d like to take out a home equity loan for $30,000. Your combined balances would equal $180,000 ($150,000 first mortgage + $30,000 home equity loan). This translates to a 40% CLTV ratio ($180,000 / $450,000), which is under the lender’s 80% maximum.

Credit score at least in the mid-600s

Many lenders allow you to tap your equity with a credit score in the 600s (680 was once common, but the norm is now closer to 620, especially for HELOCs). You won’t get the best interest rate with a lower score, however.

Some lenders also extend loans to those with scores below 620, but these lenders might require you to have more equity or carry less debt relative to your income. Bad-credit home equity loans and HELOCs often come with higher interest rates, limited loan amounts and shorter repayment periods.

Before applying for a home equity product, take steps to maintain or improve your credit score. This involves making timely payments on loans or credit cards, paying off as much debt as possible and avoiding new credit applications.

A low debt-to-income ratio

The debt-to-income ratio (DTI) is a measure of your gross monthly income relative to your monthly debt payments, including your mortgage and home equity loan payments.

Qualifying DTI ratios vary from lender to lender but, in general, the lower your DTI, the better. Most home equity lenders look for a DTI ratio of no more than 36%, but some may allow exceptions up to 45 or even 50%.

To calculate your DTI ratio, divide your total monthly debt payments by your gross monthly income, then multiply that result by 100 to get a percentage. If that percentage exceeds your lender’s specific threshold, you have a few options: pay off as much debt as you can, increase your income or lower the loan amount.

Adequate income

There aren’t set income requirements for home equity loan or HELOC qualifications. But you do need to earn enough to meet the DTI ratio requirement for the amount of money you’re hoping to tap. You’ll also need to prove that you have income consistently coming in.

Be prepared to provide income verification information when you apply for your loan, such as W-2s and paystubs.

Checklist for home equity loan borrowing

1. Review your credit score: You want it to be high enough to qualify for a home equity loan and get the most competitive rates. If it’s not, take steps to improve the numbers: dispute any inaccuracies on your credit report, pay down outstanding balances and ask for higher credit limits on your cards. Bear in mind it could take several months for a rise in your score to register.

 2. Calculate your debt-to-income ratio: Your ratio is another important factor in whether an application gets approved. Every lender has its own specific debt-to-income (DTI) requirements — how much money goes out vs. how much comes in each month — with 36% being a general standard for conventional loans. To calculate your DTI, add up all of your monthly debt payments, then divide by your monthly income.

3. Calculate how much equity you have: To determine your home equity, subtract your outstanding mortgage from the fair market value of your home. For instance, if the fair market value of your home is $450,000 and your mortgage balance is $200,000, you have $250,000 in equity. The exact amount you’ll be able to borrow will depend on the size of your mortgage, how much equity your lender requires you leave untouched and your overall creditworthiness.

4. Explore options from multiple lenders: Take the time to shop around and compare offers, which can also help you assess the various applicant requirements, compare different terms and better prepare your finances.

5. Submit an application: When you’ve settled on a lender, complete an application. Many lenders will let you do so digitally nowadays. The process is similar to applying for a mortgage, only a tad simpler and faster. Still, it can take up to a month to get your money.

Frequently asked questions

• Is it easy to get a home equity loan?

  The process of getting a home equity loan is relatively straightforward. However, to qualify, you typically have to own at least 20% of your home’s value. This means if you recently purchased your home with a small down payment, you likely won’t be able to borrow against your equity for some time. Furthermore, the qualification standards for these loans are typically more rigorous regarding your credit and income than those for credit cards or personal loans. You usually need a debt-to-income ratio of 43% or less, a credit score in the mid-600s or higher and proof of steady earnings.

• If I don’t meet the requirements for a HELOC or home equity loan, what are some alternatives?

  Here are some alternatives. Bear in mind that their terms and tax advantages are different from those of home equity products.

  • Personal loans: A personal loan is a lump sum of money with a fixed interest rate and fixed monthly payment. The repayment term can last from one to seven years. Most personal loans are unsecured, meaning you don’t need to put up collateral to get one. Home improvement loans offer bigger amounts, directly competing with home equity loans.
  • Zero-interest credit cards: When you use a 0% intro APR credit card, you’ll avoid paying interest on purchases during an initial promotional period, often between six and 21 months. Just be sure to pay off the debt in full during the promotional period, or else you’ll be charged interest.
  • Family loans: Family loans are simply loans from relatives. This can be a good option if a family member is willing to lend you money at no or low cost.

• Can I borrow 100% of my home equity?

  No. You can typically borrow a maximum of 80% of your home’s equity. Some lenders will let you go as high as 85 or 90%.

• Is it easier to qualify for a HELOC or a home equity loan?

  The qualifications for HELOCs and home equity loans are about the same. The application process is somewhat easier with a HELOC, though, as it usually skips title searches and full in-person home appraisals. It also depends on the lender: For example, BMO Bank requires a borrower credit score of at least 700 for home equity loans, but only 650+ for HELOCs.

Additional reporting by Mia Taylor