What is the maximum HELOC loan amount?
A home equity line of credit, or HELOC, gives homeowners access to cash by borrowing against the equity they have in their homes.
The maximum amount of HELOC you can borrow depends on the value of your home, what you own in your current mortgage, and what percentage of the home value your lender will pay you out. Most lenders allow you to borrow up to 85%, but some go higher – up to 90% or even 100%.
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HELOC Loan Limits
Lenders determine the credit limit for a HELOC by offering a portion of your home’s value as the credit limit.
The maximum HELOC amount is expressed as a percentage (usually 85%) that represents the total amount you can borrow for your home—including your HELOC and anything you own on your existing home loan. This is known as combined loan-to-value (CLTV).
Lender policies vary, but the average HELOC limit offered by most lenders is 80% to 85%. This means that your HELOC amount and your current mortgage balance combined cannot exceed 80% to 85% of the home’s appraised value. Some lenders allow up to 90%, some even up to 100%. The higher the LTV, the higher your interest rate.
Typically, HELOCs that exceed 90% of home value are only offered by lenders that issue memberships (eg, credit unions).
Lenders may impose dollar limits on HELOCs as well as CLTV limits. Dollar limits vary by lender; $10,000 to $25,000 are “normal” lower limits that are often borrowed, while higher HELOC limits can be as high as $1,000,000.
How your maximum HELOC amount is determined
The maximum loan amount for a home equity line of credit varies by lender. The sum she can borrow also depends on:
- The amount of equity you have in your home
- your creditworthiness
- Lender Policies
If your house is worth $350,000 and you owe $175,000 on your existing mortgage, your Mortgage Loan Value is 50% ($175,000 / $350,000 = 0.50 or 50%). -Value.
Using the same scenario as above, a lender can determine how much you could borrow as follows:
|Current mortgage balance||$175,000|
|Maximum LTV||85% (0.85)|
|Maximum total balance (mortgage + HELOC)||$297,500 ($350,000 x 0.85)|
|Maximum HELOC amount (total balance – mortgage)||$122,500|
Numbers are included for example purposesly. Your own loan amount will be different.
Factors affecting your maximum HELOC amount
Factors other than the value of your home, current mortgage balance, and lender policies can affect your maximum HELOC amount.
The better your credit score, the more likely you are to qualify for a low interest rate on your HELOC. A low interest rate helps increase your creditworthiness. On the other hand, bad credit can hurt your chances of qualifying or mean a higher interest rate and lower loan amount if you qualify. Most lenders require a HELOC credit score of 660 to 700.
The interest rate
Interest rates on HELOCs vary depending on your credit rating, financial situation, and the current economic climate. Interest on second mortgages (HELOCs and home equity loans) is usually slightly higher than the interest you would pay on a main mortgage.
Your debt to income ratio
Your debt-to-income ratio (DTI) determines how much you can afford to borrow if you qualify for a HELOC. Debt included in your DTI includes your existing mortgage payment, credit card minimum payments, and payments on other installment loans such as student or car loans. Child support and child support payments are also included.
The less money you spend each month on other existing debt, the more you can borrow on a HELOC. The lender requires proof of employment and income to calculate your DTI. Typically, a HELOC requires a lower DTI than a traditional mortgage.
New home appraisal
When you apply for a HELOC, your lender may request a new home appraisal. The appraised value of your home is important as it is used to calculate the equity level of your home. The higher the appraised value of your home, the easier it will be to borrow money based on your home equity.
Frequently asked questions about HELOC credit limits
While many lenders limit their loan-to-value limits to 80% to 85%, some lenders allow you to borrow up to 90% of your home’s value with a HELOC. Remember that the maximum HELOC limit includes both your HELOC amount and any existing mortgage balances on the home. Your current loan amount is subtracted from your maximum loan limit to determine your HELOC amount.
Most lenders offer HELOCs up to 85%. Some credit unions offer high-LTV HELOCs up to 100% of your home’s value, but these are far less common.
The impact that a HELOC can have on your credit score usually depends on the amount of credit actually used, not the unused portion. Additionally, an unused home equity line of credit can actually have a positive impact on your credit score as it increases your total available credit and thus reduces loan utilization.
Although the HELOC minimum payment on your credit report represents the interest payment due, that payment affects your DTI. This may affect your ability to borrow additional funds for other purposes.
Most lenders do not allow borrowers to raise a HELOC within 12 months of the loan being established. To increase your line of credit, contact your lender and request a change to the terms of your current HELOC.
Yes. You can open a home equity line of credit and leave it unused. If your HELOC has a zero balance, it can also help improve your credit score.
your next steps
A home equity line of credit is a great way to add value to your home and ensure you have funds when you need them. And the interest payment option means you have the option to make lower payments if you need to.
If you need money to make home repairs or renovations due to a layoff or vacation, or simply to consolidate high-interest credit card debt, a HELOC can be an easy and inexpensive way to access cash. Many lenders offer HELOCs, so shop around and compare the costs, rates, and terms on offer.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for the products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policies or position of Full Beaker, its officers, parent companies or affiliates.