A good fit if
- Your first mortgage has a low rate you want to keep
- You need money over time, like for a renovation
- You want access to funds without borrowing it all at once
Probably not if
- You need a large fixed amount and rates have dropped (a cash-out refinance may be better)
- You're uncomfortable with a variable rate
- You have little equity
How a HELOC Works
A home equity line of credit is a second loan secured by your home. During the draw period, often around 10 years, you can borrow and repay as needed, much like a credit card, and many HELOCs require only interest payments. After the draw period ends, the repayment period begins and you repay principal and interest. Most HELOCs have a variable rate tied to the prime rate, so the cost can rise or fall.
A home equity loan is similar but gives you a lump sum up front, usually at a fixed rate.
How Much Can You Borrow With a HELOC?
Lenders look at your combined loan-to-value: your first mortgage plus the new line, divided by your home's value. Many cap it around 80–90%, depending on credit and occupancy.
Example: your home is worth $1,000,000 and you owe $500,000. At an 80% combined limit, the most you could have in total loans is $800,000, so the line could be up to $300,000. Figures are illustrative only.
HELOC Requirements
- Equity: enough to stay within the lender's combined loan-to-value limit.
- Credit score: commonly 680 and up, with higher limits for stronger credit.
- Debt-to-income: usually up to about 43–50%, including the HELOC payment.
- Income: standard documentation at most banks. Some Non-QM lenders offer HELOCs and closed-end seconds using bank statements.
- Property: primary homes are easiest. Second homes and rentals have fewer options and lower limits.
Common Uses for a HELOC
- Home renovations and repairs
- A down payment on an investment property
- Consolidating higher-interest debt
- An emergency fund you only pay for when you use it
Because the line is secured by your home, borrow only what you have a plan to repay.
HELOC vs. Cash-Out Refinance
| HELOC | Cash-out refinance | |
|---|---|---|
| Your first mortgage | Stays in place | Replaced |
| How you receive funds | Draw as needed | Lump sum at closing |
| Rate type | Usually variable | Fixed or adjustable |
| Best when | Your current rate is low | Rates have dropped or you need a large amount |
If your first mortgage rate is low, a HELOC lets you keep it. A cash-out refinance replaces it. Read the full comparison.
HELOC Costs and Fees
HELOCs often cost less to open than a refinance, but they aren't free. Depending on the lender, you may see an appraisal or valuation fee, an origination fee, title charges, an annual fee, or an early-closure fee if you close the line within the first few years. Some lenders require a minimum initial draw. Ask for every fee in writing so you can compare offers fairly.
HELOC vs. Home Equity Loan
A HELOC works best when you'll need money over time, such as a renovation paid in stages. You only pay interest on what you draw. A home equity loan gives you the full amount at closing with a fixed rate and a set repayment schedule, which suits a one-time expense and borrowers who want a predictable payment. Both are second mortgages, and both put your home on the line if you can't repay.
How to Get a HELOC
- Estimate your equity using a recent value and your current loan balance.
- Check your credit and debt-to-income, including the potential HELOC payment.
- Compare offers, including draw period, repayment terms, fees, and any minimum draw.
- Apply and get an appraisal or valuation.
- Close. On a primary home, you have a three-day right to cancel.
Documents You'll Need
- Current mortgage statement
- Income documents, or bank statements for a Non-QM HELOC
- Homeowners insurance declarations page
- Photo ID
HELOC FAQ
Can I get a HELOC on a rental property?
Some lenders offer them, usually with lower limits and higher pricing than on a primary residence.
Is HELOC interest tax-deductible?
Sometimes, depending on how you use the money. Ask your tax professional.
What credit score do I need for a HELOC?
Many lenders look for 680 or higher, and the highest limits usually go to borrowers with 720+.
What happens when the draw period ends?
You can no longer borrow, and payments switch to principal and interest, which usually raises them. Some borrowers refinance the balance before then.
Can I get a HELOC if I'm self-employed?
Yes. Banks typically use tax returns, and some Non-QM lenders offer home equity loans using bank statements instead.
Available for properties in California. HELOC rates are usually variable and can increase. Your home secures the line, and failure to repay could result in foreclosure. Not all applicants will qualify. Not a commitment to lend.