How Much Home Equity Do You Need for a HELOC?

A home equity line of credit (HELOC) is a popular financing option that allows you to borrow against the equity you’ve built in your home. Lenders are more likely to approve your HELOC application if you meet their requirements, such as having at least 15% to 20% home equity.

Understanding how much home equity you need for a HELOC is important because it directly affects your eligibility and borrowing power. Knowing this upfront helps you determine if a HELOC is the right option for your financial needs and ensures a smoother application process.

When you buy a home, you don’t own it entirely right away. Instead, you build ownership over time as you pay down your mortgage. This ownership is what’s known as home equity — the difference between your home’s current market value and the amount you still owe on your mortgage.

Home equity is a valuable asset because it can be borrowed against if needed or realized as profit when you sell your home. Experian found that as of Q3 2023, the average HELOC balance was $42,139, indicating that home equity can be a significant financial resource.

Lenders typically require you to have at least 15% to 20% equity in your home to qualify for a HELOC. Knowing how to calculate your home equity allows you to better understand your borrowing power. Your equity is the difference between your home's market value and what you still owe on your mortgage. Understanding this helps you determine how much you can borrow with a HELOC.

Imagine you got a $300,000 mortgage and purchased a home five years ago worth $400,000. Over time, you’ve paid down your mortgage, and now you owe $275,000. Meanwhile, your home’s market value has increased to $450,000. Let's use this scenario to calculate your home equity.

If you don’t have much equity, it can limit how much you can borrow with a HELOC or even affect your eligibility. Fortunately, there are several ways to build equity in your home over time. Let’s explore some of these:

Borrowing against home equity offers access to substantial funds, often at lower interest rates than other loans. However, it puts your home at risk if you can’t repay. It’s important to weigh these pros and cons carefully before securing a HELOC. Let’s explore these in detail.

Having at least 15–20% home equity is just one factor lenders consider when assessing your HELOC application. Knowing other HELOC eligibility requirements, like credit score and income stability, can increase your chances of approval. Let’s explore these additional requirements so you’re fully prepared before applying.

A HELOC might not always be the best choice, especially if you prefer a fixed interest rate or need a lump sum upfront. Fortunately, there are other loan options to consider. Let’s compare HELOCs with other ways to access your home equity.

Many homeowners may have questions about how much equity you need for a HELOC. We’ve compiled answers to commonly asked questions to help you better understand the requirements and make informed decisions about your options.