Do I Qualify for a HELOC? Learn the Eligibility Requirements

Are you considering tapping into your home’s equity for some extra financial flexibility? Whether it’s for home improvements, consolidating debt, or managing unexpected expenses, a home equity line of credit (HELOC) might be exactly what you are looking for. But how do you know if you are eligible for a HELOC? This guide will break down everything you need to know about HELOC qualifications so you can take full advantage of your home’s equity.

What Is Home Equity Line of Credit?

A HELOC, or Home Equity Line of Credit, is a type of revolving credit secured by the equity in your home. Think of it as a credit card—but instead of tapping into a bank's funds, you are borrowing against your home’s value.

HELOCs are known for their flexibility. You borrow what you need, when you need it. The best part? You only pay interest on what you actually borrow—not a lump sum. Need to tackle that long-overdue bathroom renovation? HELOC. Want to consolidate your credit card debt for a lower interest rate? HELOC. Thinking about funding that long-planned beach getaway? Okay, maybe think twice on that one—but it’s an option.

For a detailed breakdown of the pros and cons of HELOCs, check out our previous article “Is a HELOC Worth It?”.

Do I Qualify for a HELOC?

Before you start planning your dream projects, there’s one major question to answer yourself first: Am I eligible for a HELOC?  Here’s a breakdown of some HELOC requirements that most lenders review with your application.

1. Homeownership

This might sound obvious, but in order to qualify for a HELOC, you need to actually own a home. Homeownership is non-negotiable because HELOCs are secured by your property as collateral.

If you are still paying off your mortgage, no worries! Most HELOC applicants have outstanding mortgage balances, which we will explain later on.

2. Equity in Your Home

Your eligibility also depends on how much equity you have in your home. Equity is the portion of your home’s value that you truly “own.” It’s calculated by subtracting your existing mortgage balance from the current market value of your home.

For example, if your home is worth $500,000 and you owe $300,000 on your mortgage, your equity is $200,000. Most lenders typically require at least 15-20% equity to approve you for a HELOC.

3. Credit Score and Credit History

Lenders look for good credit scores when approving HELOCs. A higher credit score not only boosts your chances of approval but also helps you secure better HELOC interest rates. Most lenders prefer scores above 600, but better scores (think 700+) will position you as a stronger candidate.

Remember, each bank has special criteria, so even if your score falls below the threshold, you still might qualify!

4. Income and Employment Verification

Lenders want to make sure you have stable income to repay what you borrow. Therefore, they will evaluate your income and employment history. Be prepared to provide recent pay stubs, W-2s, or tax returns if you are self-employed.

5. Loan-to-Value (LTV) and Debt-to-Income (DTI) Ratio

The loan-to-value (LTV) ratio measures how much debt you owe on your home compared to its value. Lenders will typically approve a HELOC if your LTV ratio is below 80-90%. For example, if your home is worth $400,000 and you owe $280,000, your LTV is 70%.

On the flip side, lenders will also consider your debt-to-income (DTI) ratio, which is the percentage of your monthly income that goes toward debt payments. Ideally, your DTI should be below 43% to meet HELOC eligibility requirements.

6. Property Type

The kind of property you own matters. Single-family homes and primary residences are commonly accepted. However, some lenders might extend HELOCs for investment properties and vacation homes. Be sure to check with your lender on property eligibility!

7. Existing Mortgage Status

You can still qualify for a HELOC even if you have an existing mortgage. However, having multiple loans tied to your home may limit exactly how much you can borrow. The combined loan amounts (your current mortgage plus your HELOC) must stay within the allowable LTV ratio.

PRO TIP: Want to learn how much you qualify for? Use a Home Equity Line of Credit Calculator to get a personalized estimate of your potential HELOC limit.

Best Bank for HELOC: Academy Bank

By now, you should have a good idea of whether you are eligible for a HELOC. But why choose Academy Bank for your home equity line of credit? Here’s what sets us apart for our best HELOC solutions:

• Competitive Rates: Our HELOCs come with affordable, flexible interest rates designed to save you money.
• Flexible Terms: Manage your line of credit in a way that fits your financial goals.
• Expert Support: Our team is here to help you throughout every step of the process—from your application to your repayment plan.
• Special Tools: Plan ahead with our HELOC Payment Calculator and create a borrowing strategy that works for you.

Are you ready to unlock the value of your home? Apply for a HELOC with Academy Bank today and experience the financial flexibility you’ve been looking for!

Home Equity Line of Credit

MORE HELOC RESOURCES:
Selling Your Home? Use a HELOC to Prepare
What Home Renovations Have the Biggest ROI?
Are HELOCs or Personal Loans Better for My Financial Needs?
When is the Best Time to Get a HELOC?