A HELOC (home equity line of credit) is a credit product that allows homeowners to borrow against the portion of their home they own, functioning like a credit card with a set limit and interest charged only on the amount borrowed.

How is home equity defined?

Home equity is the difference between a home’s current market value and the outstanding mortgage balance; for example, a $400,000 home with a $280,000 mortgage has $120,000 in equity.

How much equity is typically required to qualify for a HELOC?

Most lenders require homeowners to have at least 15% to 20% equity, which corresponds to owing no more than 80% to 85% of the home’s current value.

What is loan-to-value (LTV) and how does it relate to HELOC qualification?

Loan-to-value (LTV) is the ratio of the remaining mortgage balance to the home’s current value; to qualify for a HELOC the LTV usually needs to be 80% or lower, though some lenders may allow up to 85% depending on credit and income.

How do you calculate LTV with an example?

Divide the remaining mortgage balance by the home’s estimated value; for example, a $280,000 mortgage on a $350,000 home yields an LTV of 280,000 ÷ 350,000 = 80%.

How much usable equity can be borrowed with a HELOC?

Usable equity equals the lender’s allowed LTV percentage of the home value minus the current mortgage balance; for example, with an 85% LTV on a $350,000 home (85% = $297,500) and a $280,000 mortgage, usable equity would be $17,500.

What other factors do lenders consider when setting a HELOC credit limit?

Lenders consider the borrower’s credit score, income, and other debts in addition to usable equity when determining the HELOC credit limit.

What can a homeowner do if they don’t have enough equity to qualify for a HELOC?

A homeowner can pay down the mortgage faster with extra payments, make home improvements that increase market value, or wait for favorable housing market appreciation to build equity.

What are recommended uses for HELOC funds?

HELOC funds are best used for long-term value projects such as home renovations that boost the home’s worth or consolidating high-interest debt, and as a flexible backup option for other expenses.

What precautions should borrowers take when using a HELOC?

Borrowers should understand HELOC terms—especially if the rate is variable—plan to repay borrowed funds during the draw period or start paying down principal early, and use the line responsibly to protect their home equity.

How Much Home Equity Do You Need for a HELOC?

Consider using the value of your home to help pay for renovations, consolidate debt, or cover other expenses. A HELOC can be a flexible way to do just that — but how much equity do you need to qualify? It’s a common question, especially for first-time borrowers. The good news is, you don’t have to own your home outright to tap into its value. A home equity line of credit allows you to borrow against the portion of your home you own, but there are a few key numbers and guidelines to keep in mind.

Understanding Home Equity Basics

Before discussing the requirements, it’s helpful to understand what home equity means. Simply put, your equity is the difference between your home’s current market value and what you still owe on your mortgage. For example, if your home is worth $400,000 and your mortgage balance is $280,000, you have $120,000 in equity.

This equity builds over time as you make mortgage payments and your home increases in value. The more equity you have, the better your chances of qualifying for a HELOC and accessing a higher credit limit.

Typical Equity Requirements to Qualify

Most lenders require homeowners to have at least 15% to 20% equity in their property to be eligible for a HELOC. That means you should still owe no more than 80% to 85% of your home’s current value. This percentage is known as the loan-to-value ratio, or LTV. To qualify, your LTV usually needs to be 80% or lower, though some lenders may be more flexible depending on your credit and income.

So, how do you calculate it? Divide your remaining mortgage balance by your home’s estimated value. If your home is worth $350,000 and you owe $280,000, your LTV is 80%, putting you on the edge of qualifying.

How Much Can You Borrow?

The amount you can borrow with a HELOC depends on your usable equity, the portion above your required equity threshold. Let’s say your lender allows up to 85% LTV. Using that same $350,000 home value, 85% equals $297,500. If you owe $280,000 on your mortgage, your usable equity would be $17,500.

Lenders also consider your credit score, income, and other debts when determining your credit limit. Even if you have plenty of equity, you’ll still need to show you can manage the monthly payments. A strong credit profile and steady income can increase your borrowing power.

What If You Don’t Have Enough Equity Yet?

If your equity is below the threshold, don’t worry — you have options. You can focus on paying down your mortgage more quickly, making extra payments when possible to reduce your balance. Another way to build equity is by increasing your home’s value through smart improvements like updating your kitchen, replacing old windows, or finishing your basement.

Also, keep an eye on the housing market. If home prices are rising in your area, your equity may grow over time without any changes on your part. You can check your home’s estimated value through real estate websites or get a professional appraisal when ready to apply.

Tips for Getting the Most Out of Your HELOC

Once you meet the equity requirement and qualify, using your HELOC wisely is important. Because it functions like a credit card with a set limit, you can borrow only what you need and pay interest only on that amount. It’s best to use the funds for long-term value — like renovations that boost your home’s worth or consolidating high-interest debt.

Be sure to understand the terms, especially if your HELOC has a variable interest rate. Make a plan to repay the borrowed funds during the draw period or start early on the principal to avoid large payments later. Managing your HELOC responsibly keeps your financial foundation strong and protects the home you’ve worked hard for.

Building equity takes time, but once you’ve reached that 15% to 20% threshold, a HELOC can be a valuable financial tool. Whether you’re planning a remodel, need extra cash for education, or want a flexible backup option, knowing how much equity you need puts you in control of the process. AmeriSave offers a simple and supportive way to explore your options and see what’s possible. With the right preparation and clear goals, your home can do more than provide a roof — it can also help support your financial future.