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How much you can borrow on a HELOC

Lenders cap the line at a share of the home's value minus what you already owe. Here is the math, the ranges, and why the estimate and the final limit differ.

01The formula lenders use

Lenders think in combined loan-to-value, or CLTV: the first mortgage plus the new line, divided by what the house is worth. Most cap CLTV somewhere between 80 and 90%. The limit is whatever room is left under that cap.

On a $400,000 house with $240,000 still owed, an 80% cap allows $320,000 of total debt, so the line could reach about $80,000. A lender with a 90% cap would allow up to about $120,000. Same house, same borrower, a $40,000 difference from one number in the lender's policy.

Room under the cap on a $400,000 house
Still owed80% cap85% cap90% cap
$200,000$120,000$140,000$160,000
$240,000$80,000$100,000$120,000
$280,000$40,000$60,000$80,000
$320,000$0$20,000$40,000

02What else moves the number

  • Credit. Higher scores unlock the higher caps. Below about 700, many lenders drop to 80% or lower.
  • Debt-to-income. The new payment, figured at the fully indexed rate, has to fit under roughly 43 to 50% of gross monthly income with your other debts. A tight ratio trims the limit even when equity is plentiful.
  • Property type. Condos, second homes and rentals usually get a lower cap, often 70 to 75%.
  • Lender minimums and maximums. Many lines start at $10,000 to $25,000 and stop somewhere between $250,000 and $500,000.
  • The valuation itself. An automated value that comes in 5% under your expectation knocks the same dollars off the limit as 5% of the house, which on a $400,000 home is $20,000.

03Why the estimate and the final limit differ

The estimate you see at the start uses your own numbers and a model of the house. The final limit uses the lender's valuation, the real mortgage balance from your servicer, and a title search. The three most common reasons the final number is lower are a low valuation, a lien the title search turns up, and income that documents thinner than it was described.

It is why a range is the honest answer before underwriting. Why your equity is a range covers the error on both sides of the subtraction.

04How much to actually take

The limit is what the lender will allow. The right draw is what you can repay. Run the payment on the full amount you expect to draw, at a rate 2 points above today's, through the repayment period when principal is due. If that payment would not fit the budget, take less, or look at the no-payment path with open eyes about its later cost.

See where you actually land

Your address, a value and equity range, then the paths that fit. About a minute, and no credit check.

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Related

  1. Why your equity is a range and not a numberEquity is a modeled value minus a modeled lien. Both sides have error, so an honest number is a range, not a single dollar figure.
  2. How long a HELOC takes, and what slows it downOnline lenders can fund in about a week. Banks ordering a full appraisal often take 4 to 6 weeks. Here is what happens in each stretch and how to keep it moving.
  3. Home equity line of credit: the full guideWhat a HELOC is, who gets one, how the process runs week by week, what it costs, and where it loses to the other ways of getting money out of a house.

This path, in order

Home equity line of credit: the full guide

  1. 01HELOC vs. home equity investment: which one costs you lessA HELOC is usually cheaper if you can carry a payment and your credit qualifies. A home equity investment costs more later and asks for no monthly payment.
  2. 02How much you can borrow on a HELOCYou are here
  3. 03How long a HELOC takes, and what slows it downOnline lenders can fund in about a week. Banks ordering a full appraisal often take 4 to 6 weeks. Here is what happens in each stretch and how to keep it moving.
  4. 04HELOC vs. cash-out refinance: which one to useA cash-out refinance replaces your whole mortgage at today's rate. A HELOC leaves it alone and adds a second loan. The first-mortgage rate usually decides it.
  5. 05HELOC interest and taxes, in plain termsInterest on a home equity line is deductible in some situations and not in others, and the difference is what you spend the money on. The outline, without the advice.
  6. 06Why your equity is a range and not a numberEquity is a modeled value minus a modeled lien. Both sides have error, so an honest number is a range, not a single dollar figure.