What Are The Requirements for a Home Equity Line of Credit?

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

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If you’ve been in your home for some time, chances are you’ve built up a significant amount of equity. Or maybe you recently purchased, and the thriving real estate market has provided a quick boost to the amount of equity you have. Either way, you may be considering a home equity line of credit and wondering what you’ll need to qualify.

It depends on the lender, but you’ll discover the general requirements in this guide along with other alternatives, like an Unlock home equity agreement that may be worth exploring. 

Unlock Your Home Equity

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Learn how Unlock can help you access cash using your home’s equity without taking extra debt or paying any monthly fees.
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Learn how Unlock can help you tap into your home equity without taking a loan or adding to your existing debt to fund personal projects.

What Is a Home Equity Line of Credit? 

Also known as a HELOC, a home equity line of credit lets you tap into your home’s equity. It’s secured by your home and gets you access to up to 85 percent of the equity you’ve built up. 

The lender will subtract the remaining balance on your mortgage and any other loans against your home from your property value to calculate how much equity you have. For example, assume you purchased your home for $375,000 and have since paid down $100,00 of the principal, leaving you with a $275,000 mortgage balance. If your home is now worth $425,000, you could qualify for a HELOC of up to x ($425,000 * .85 – $275,000).

How Does a Home Equity Line of Credit Work? 

If you’re approved for a HELOC, you’ll get access to a revolving credit line that operates like a credit card. You can spend up to the limit during the draw period, generally around 10 years. Each time you remit payment over the required payment for interest, the funds become available for use. 

Once the draw period ends, the lender requires payment for the outstanding balance in monthly installments for up to 20 years. However, the amount you pay each month could change since most HELOCs come with variable interest rates. 

What Can You Use a Home Equity Line of Credit For? 

There are usually no restrictions on using the funds drawn from a HELOC. Even better, you’re not obligated to withdraw the entire amount and only pay interest on what you borrow. 

Many homeowners pay down high-interest debt, boost emergency savings, contribute to their nest egg, start a business, make big-ticket purchases or pay for costly home improvements. 

What Are the Requirements To Get a Home Equity Line of Credit? 

The lender determines the eligibility criteria, but you should meet these guidelines to qualify: 

  • Have a credit score of at least 620
  • Have a debt-to-income ratio of no more than 40 percent 
  • Own a home that’s valued at or over 15 percent of your outstanding mortgage balance

You’ll also need to provide documentation similar to what was requested when you initially took out a mortgage loan. This could include: 

  • Income and employment information: most recent paystubs and W-2 forms or two years of tax returns and Form 1099s (if self-employed) and rental income documentation (if applicable) 
  • Asset information: statements from the prior two months for bank accounts, retirement accounts, brokerage accounts and other assets 
  • Debt information: monthly payments for outstanding debt and information about current real estate debt

Unlock Your Home Equity

215 Reviews
Learn how Unlock can help you access cash using your home’s equity without taking extra debt or paying any monthly fees.
215 Reviews
Learn how Unlock can help you tap into your home equity without taking a loan or adding to your existing debt to fund personal projects.

Alternatives To a Home Equity Line of Credit

If you want to access equity, review some alternative ways to access your home equity:

Home Equity Agreement 

A home equity agreement lets you convert a portion of your equity to cash without taking out a loan. Instead, you’ll get cash today, or a co-investment, in exchange for a share in your home’s future increase or decrease in value. There are no monthly payments, and you’re free to use the funds however you see fit. 

If this seems like a viable option, Unlock is a reputable, Better Business Bureau (BBB) accredited platform that provides co-investments to homeowners. You could be eligible for up to $500,000 if you have a FICO score of 500 or higher, and there are no income requirements. 

You’ll have 10 years to decide if you want to sell your home or buy out the agreement and stay in your home. Consider using the online pre-qualification tool to see how much equity you can unlock in your home. 

Home Equity Loan

A home equity loan also allows you to convert your equity to cash. They act as a second mortgage, and most lenders will approve you for up to 85 percent of your home’s equity. However, you’ll receive the funds in a lump sum and must pay interest on the entire amount over a 20 to a 30-year term. 

The upside is the interest rate on home equity loans is typically fixed, so you’ll have the same monthly payment over the life of the loan. But you risk losing your home to foreclosure should you face financial hardship and fall behind on your loan payments. 

Cash-Out Refinance

A cash-out refinance replaces your current mortgage with a new one. If you have enough equity in your home, you can possibly pull it out in cash at closing. You’ll also get new terms, which means you could end up with a higher interest rate than you currently have and spend more over the loan term. 

To illustrate how it works, assume your home is worth $425,000 and you owe $310,000. If your lender approves you for a cash-out refinance for 80 percent of your home’s equity, you could pull out equity of up to $30,000 ($425,000 * .80 – $310,000). You’ll get this amount when you close on the loan, the lender will pay off your existing mortgage, and the principal balance on your new mortgage will be $340,000 ($310,000 + $30,000).

While this alternative may seem viable as you’ll only make payments on one loan, your monthly payments could stretch your budget thin. 

Should You Get a Home Equity Line of Credit? 

It depends on your personal financial situation and goals for the money. For example, a HELOC could be suitable if you have good or excellent credit as it generally has more competitive interest rates than other home equity loan products. But if your credit score is lower or you’d prefer a debt-free way to tap into your equity, a home equity agreement from Unlock could be a better fit. 

There are no stringent qualifications, and you won’t pay hefty closing costs, monthly payments or interest. Plus, the approval process is straightforward. 

Before you move forward, weigh the costs and benefits of HELOCs, home equity agreements and other alternatives to access your home’s equity. That way, you’ll have all the information you need to make an informed decision. 


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