HELOC borrowing limit · Home equity loan · LTV ratio · How much equity you have 2026
Home Equity: What It Is and How to Use It
Home equity is the portion of your home's value you actually own — what's left after subtracting your mortgage balance. As you pay down the mortgage and your home appreciates, equity grows. Most homeowners can borrow against this equity through a HELOC or home equity loan for renovations, debt consolidation, education, and more.
HELOC vs Home Equity Loan: Which to Choose
A HELOC (Home Equity Line of Credit) works like a credit card — draw funds as needed during the 10-year draw period, pay interest only on what you use, then repay over the repayment period. Rates are variable, typically prime + 0–2%.
A home equity loan gives you a lump sum at a fixed rate, repaid in equal monthly payments over 5–30 years. Better for large one-time expenses where you want predictable payments.
What Lenders Look For
- Equity: Minimum 15–20% equity (LTV below 80–85%) to qualify.
- Credit score: 620 minimum; 740+ for best rates. Every 20 points matters.
- DTI ratio: Under 43% debt-to-income after the new payment.
- Income verification: Steady income; self-employed may need 2 years of tax returns.
- Appraisal: Most lenders require a formal appraisal to confirm home value.
Frequently Asked Questions
How is home equity calculated?
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Home equity = Current Market Value − Remaining Mortgage Balance. If your home is worth $450,000 and you owe $280,000, you have $170,000 in equity (37.8%). Your equity grows as you pay down the mortgage and as the home appreciates in value.
How much can I borrow with a HELOC in 2026?
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Most lenders allow up to 80–85% Combined Loan-to-Value (CLTV) minus your existing mortgage. Example: $450,000 home × 80% = $360,000 − $280,000 mortgage = $80,000 max HELOC. Some lenders allow up to 90% CLTV for excellent credit (760+), giving you access to more equity.
What are current HELOC rates in 2026?
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In 2026, HELOC rates are typically Prime + 0–2%, with Prime around 7.5–8.5%. Well-qualified borrowers (760+ credit, 20%+ equity) can find HELOCs at Prime + 0–0.5%. Home equity loan rates run slightly higher than first mortgages. Fixed home equity loans are running approximately 7–9% for 10–20 year terms.
Is it smart to borrow against home equity?
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Home equity debt makes sense for value-adding uses: home improvements (which increase your equity back), high-interest debt consolidation (replacing 20%+ credit card debt with 8% HELOC interest), or education. Avoid using home equity for vacations, cars, or everyday spending — these don't build lasting value and put your home at risk.