How Much Money Can You Borrow With a HELOC? (2024 Guide) (2024)

A home equity line of credit (HELOC) is a second mortgage that functions more like a credit card than a standard loan. If you qualify, your lender issues you a line of credit from which you can spend as many times as you like during a set time period — up to an established borrowing limit. They’re commonly used to finance major expenses, like home improvements, or to consolidate debt.

Your borrowing limit is based on the amount of equity you have in your home. Equity is the difference between your property’s value and what you still owe on your mortgage.

HELOCs can be used for virtually any purpose, and you can use them multiple times while your account remains open. Your borrowing limit can, however, impact what you decide to use a HELOC for.

For example, if your proposed kitchen renovation costs $50,000, but your HELOC borrowing limit is $35,000, you may need to scale back your project or find an alternative way to finance the difference.

Conversely, you don’t have to use the full line of credit. Say you receive a HELOC for up to $100,000, but you only have $65,000 in credit card debt to pay off. You can choose to spend only the $65,000, leaving you with available credit of $35,000. You’ll only have to repay the portion of the credit line you use.

>> Related: What is a HELOC?

Your lender will determine the maximum amount you can borrow by considering several data points about your property and finances. Below are three of the pivotal ones.

Loan-to-Value Ratio

A loan-to-value (LTV) ratio is simply a measurement of how much equity you have in your property. When determining your borrowing limit, your lender will calculate your LTV ratio using the following formula:

Loan-to-Value Ratio = Current Mortgage Balance / Your Home’s Appraised Value

For example, if you owe $300,000 on a house worth $500,000, your LTV ratio is 0.6, or 60%.

Many lenders require an LTV ratio of 80% to 85% or less to qualify for a HELOC. However, some financial institutions might issue HELOCs to homeowners with a higher LTV ratio.

And in most cases, your loan-to-value ratio can’t exceed that percentage once your new HELOC is factored in. That essentially sets a cap on how much of your equity you can borrow from your home.

Continuing the example above, let’s assume that your lender has an 80% maximum loan-to-value ratio. In this case, your HELOC borrowing limit could be as high as $100,000.

To get to that number, you add up your first mortgage balance ($300,000) and your new HELOC ($100,000) to give you a new loan amount of $400,000. Dividing that into your home’s value of $500,000, and you arrive at an 80% LTV ratio.

However, let’s say you owe $275,000 on a house worth $300,000. Your LTV ratio is approximately 92%, which means you wouldn’t qualify for a HELOC through a lender with an 80% maximum LTV requirement.

Credit Score

Your lender will also review your finances, and your credit score is a key factor. While each lender’s eligibility criteria may vary, you’ll often need a credit score in the mid-600s (or better) to qualify for a HELOC.

Bad credit could cause you to get denied for a HELOC. If you are approved, you may have a lower borrowing limit or a higher interest rate than someone with better credit.

Debt-to-Income Ratio

Your debt-to-income (DTI) ratio compares how much you owe with how much you earn. Lenders look at this number to ensure you’re not spread too thin financially, increasing your chance of default.

To arrive at your DTI ratio, add up all your monthly debt payments — including things like auto loans, student loans and your primary mortgage. Then divide that into your monthly income. In many cases, you’ll need a DTI ratio of less than 50% to get approved for a HELOC.

So if your monthly debt payments equal $3,000 and your monthly income is $5,000, your DTI ratio is 60%, which may be too high to qualify.

There’s no way to guarantee ahead of time what your HELOC borrowing limit will be. Lenders have different requirements when setting loan terms, and they look at a wide variety of factors. You may want to attempt prequalifying with multiple HELOC lenders to compare offers — including borrowing limits. You can also consult with a financial adviser or credit counselor before applying.

That said, you can often get a pretty good idea of how much you’ll be able to borrow before you shop around for a HELOC. Here’s how to calculate your potential HELOC borrowing limit in five easy steps:

1. Determine your property value: If you haven’t had your home appraised recently, you can enter your address on websites like Zillow, Trulia or Realtor.com to get their estimate of your home’s value.
2. Determine your mortgage debt: You can find your current mortgage balance from a recent statement. If you have any current home equity loans, include those balances, too.
3. Calculate your LTV ratio: Divide your existing mortgage debt into your home’s value. If this ratio is 80% or less, proceed to the next step. If your LTV is higher, you may not qualify for a HELOC.
4. Determine your maximum borrowing total: Multiply your home’s value by 0.8 to procure this figure. You may choose to use a different maximum LTV ratio, depending on lender requirements.
5. Subtract your mortgage balance: Take away your current mortgage balance from the product of step four to determine how much you can likely borrow.

Let’s go through this exercise with some real numbers. If you own a home worth $400,000 and owe $250,000 on your mortgage, you have $150,000 in equity and an LTV ratio of 63%. Based on your equity, you may be able to qualify for a HELOC.

Next, multiply your home’s value of $400,000 by 0.8 (the typical maximum loan-to-value ratio) to get $320,000. When you subtract your home loan balance of $250,000 from that figure, you get $70,000 — your potential HELOC borrowing limit.

If you aren’t able to borrow as much through a HELOC as you’d like, you may be able to increase your borrowing limit over time.

First, identify the cause of your lower limit. Your lender should be able to tell you this when you apply for a loan or prequalify.

If a poor credit score is to blame, you’ll want to boost your score. To help do so, you can try the following:

• Review your credit reports and contest any errors.
• Reduce the balances on existing credit accounts.
• Pay all of your bills on time — every time.

However, if your small credit line is due to insufficient home equity, consider reducing the outstanding balance on your first mortgage. You can do this over time by making your monthly mortgage payments or even speed the process up by making extra payments toward your principal. This can help widen the gap between what the house is worth and what you owe.

You could also consider investing in home improvements or upgrades to increase your home’s value — and make it that much more enjoyable for you at the same time.

>> Related: Learn more about the best HELOC rates

A HELOC won’t always be the right option for everyone. If you’re looking for a loan, you may also consider a home equity loan, cash-out refinance or a personal loan.

A HELOC can be a viable way to tap into your home equity flexibly, but opening one doesn’t give you a blank check. Your spending is constrained by a borrowing limit, which is determined by your creditworthiness, amount of home equity and overall financial standing.

While having a limit may be frustrating, it can also be helpful. The lending ceiling caps the amount of debt you can assume, potentially making it easier to repay. Plus, you don’t have to borrow up to your limit if you can cover your expenses with fewer dollars. Being responsible with your HELOC today frees up more of your hard-earned money tomorrow.

>> Related: Learn more about the best uses for a HELOC