How much can you get with a HELOC?
Please note: Discover Home Loans offers a home equity loan product, but does not offer HELOCs.
A home equity line of credit (HELOC) is a secured line of credit that is backed by your home’s value. A HELOC functions like a credit card – you get access to a revolving line of credit where you can borrow the amount you need, when you need it, up to a certain limit.
If you’re wondering – How much HELOC can I get? – the answer depends on several factors, including how much equity you have in your home, your income, and your credit score. Lenders will also look at your combined loan-to-value (CLTV) ratio to determine how likely you are to make your payments when carrying more than one loan.
If you are interested in using the equity in your home to fund a financial goal, you can check out Discover® Home Loans’ Loan Amount Calculator to see how much you might be able to borrow. Note that this calculator is intended for those interested in a Discover Home Equity Loan (discussed later on in this article), as Discover does not provide HELOCs.
Calculate how much you can borrow with a HELOC
Home equity is the difference between how much your home is currently worth and how much you still owe on your mortgage. For instance, if your home is appraised at $350,000, and you have a mortgage balance of $200,000, then you have $150,000 in home equity ($350,000 − $200,000 = $150,000). To qualify for a HELOC, you need at least 20% equity in your home.
When calculating how much you can borrow with your line of credit, your lender will use your CLTV to determine if you have sufficient equity. Your CLTV is calculated by taking your existing mortgage balance plus your desired loan amount and dividing by your home value.
CLTV = (Loan Amount + Mortgage Balance) ÷ Home’s Market Value
Let’s say you want to use $50,000 in home equity to remodel your kitchen:
$50,000 (desired loan amount) + $200,000 (mortgage balance) ÷ $350,000 (home value) = 71% CLTV.
Many lenders will cap HELOC lending at 80% of your CLTV, but it also depends on your specific qualifications.
While Discover Home Loans does not provide HELOCs, it offers home equity loans up to 90% CLTV for loan amounts between $35,000 and $150,000. If you’re interested in seeing how much equity you are eligible to borrow with a home equity loan, check out Loan Amount Calculator from Discover.
How to increase what you get from a HELOC
If you’re looking for ways to increase how much you can borrow with a HELOC, there are a few strategies you can use.
Increase your home equity
You can increase the equity in your home by making improvements that increase your home’s value or by paying down the mortgage debt you owe.
Remodeling your kitchen or bathroom or replacing your old roof can boost the value of your home and increase the amount of equity in your home while doing so.
If you pay off part of your mortgage debt, you also increase your home’s available equity. While paying your monthly mortgage bill will shrink your debt, consider paying more than your monthly to reduce your principal while increasing your available equity.
With more equity, lenders will be comfortable offering you more to borrow through your HELOC.
Improve your credit score
Healthy credit scores allow lenders to increase the amount you can borrow through a HELOC.
A higher credit score can help you secure a better HELOC interest rate and more favorable terms. Lenders use your credit score and other factors of your credit history to determine how likely you are to repay your loan.
So, if you focus on improving your credit score, your lower risk to HELOC lenders can translate into more money to borrow through your HELOC.
Reduce your debt
HELOC lenders often take your debt-to-income (DTI) ratio into account when deciding if they want to lend you money. Your DTI ratio compares what you earn (income) to what you owe (debt) and gives HELOC lenders an idea of how much you can realistically borrow and pay back.
To increase what you can get from a HELOC, the lower your DTI, the larger your borrowing limits can be.
When calculating how much debt you have, lenders usually consider your current mortgage payments, car loans, credit card debt, student loan payments, and any other existing monthly debt you are carrying. Paying off revolving debt or paying down installment loans can decrease your overall debt, improve your DTI, and give lenders less risk when offering more to borrow through HELOCs.
Increasing your income by starting a side hustle or taking on extra shifts at your job is another way to improve your DTI. A higher income allows HELOC lenders to offer high limits of borrowing to match your ability to repay the loan.
Borrowing alternatives to HELOCs
There are other home equity borrowing alternatives to a HELOC, including a home equity loan or a cash-out refinance.
Home equity loan
A home equity loan is another way you can borrow against the equity in your home.
A home equity loan is a lump-sum payment that has a fixed interest rate, fixed terms, and fixed monthly payments (unlike the variable rates and fluctuating monthly payments of a HELOC).
With a Discover home equity loan, you don’t have to pay anything at closing, including application fees, origination fees, or appraisal fees. Discover offers home equity loans from $35,000 to $300,000 with fixed interest rates and payments terms of 10,15, 20, and 30 years. This means, if you borrowed $60,000 for a 20 year term at 8.99% APR, your fixed monthly payments would be $539.45. See here for current home equity loan interest rates by Discover.
See how much you can borrow and how much your monthly payments would be with a Discover home equity loan by using our simple Rate & Payment Calculator.
With a cash-out refinance, you can refinance your current mortgage into a larger mortgage and then take out the difference in cash.
For instance, if your home is worth $350,000 and you owe $200,000, you have $150,000 in equity. If you need $50,000 for a home improvement project, you may be able to add this amount to the principal of your newly financed mortgage loan for a total of $250,000.
With Discover Home Loans, you can apply for a cash-out refinance loan from $35,000 to $300,000 with 10, 15-, 20-, and 30-year terms. For example, if you borrowed $60,000 for a 20-year term at 8.99% APR, your fixed monthly payments would be $539.45. There are no application, appraisal, or origination fees. See here for current refinance rates by Discover.
Unlike HELOCs, a cash-out refinance in first lien position will earn a competitive fixed rate with stable monthly payments. To see how a cash-out refinance can work with your current home equity, you can use our quick and easy Cash-Out Refinance Calculator.
Comparing a home equity line of credit with a home equity loan
On the surface, the HELOC and home equity loan seem very similar – both are loans that allow you to use your home as collateral to obtain cash. Both come with interest rates that are typically more favorable than using your credit cards or taking out a personal loan. A HELOC and a home equity loan differ in how they are structured.
A HELOC functions like a credit card. You borrow as much or as little as you need on a revolving basis up to a certain credit limit. A HELOC comes with a variable interest rate which can fluctuate, causing your payments to differ month to month. This can make budgeting a little more challenging as you can’t predict the exact amount of your monthly payments.
A home equity loan is structured more like a conventional mortgage loan: you get a lump sum payment with a fixed interest rate. The fixed rate can make budgeting easier because you can count on consistent monthly payments.