How much can you borrow with a HELOC?

You've probably heard that buying a home is an investment since property often increases in value. You don't necessarily need to wait until you sell your home to capitalize on that investment, however. A home equity loan or home equity line of credit (HELOC) could let you tap into your home's value to reach financial goals you have now—no sale required.

It's not an endless pool of money, of course. There's a limit on what you can borrow with a HELOC or other home equity loan.

Your HELOC borrowing limit is usually based on a percentage of your home's value. Lenders generally allow you to borrow up to 80% to 90% of your home's value, minus what you still owe on the mortgage. Other factors that could affect your borrowing limit include your credit, income, and the lender's specific rules.

Ready to learn more? Let's break it down.

How much can you borrow with a HELOC?

All lenders have a max home equity line of credit (HELOC) size they offer overall. To find out how much of that they'll lend you, lenders use a specific formula: the combined loan-to-value (CLTV) ratio. The CLTV compares your home's market value versus all the loans you have against the home.

Typically, lenders have a max CLTV of 80% to 90%—and this includes the new HELOC you want. So, to figure out the largest HELOC you could get, multiply the lender's CLTV cap by your home's value, then subtract your mortgage.

For example, say your home is worth $500,000, and your mortgage balance is $300,000. The lender has a max CLTV of 85%. The numbers would look like this:

$500,000 x 0.85 = $425,000

$425,000 - $300,000 = $125,000

In this example, you'd have a potential max HELOC of $125,000. That's assuming you meet all of the lender's other requirements. Here's more on that.

What factors affect your HELOC borrowing limit?

Three of the biggest factors in your HELOC limit are:

• Your home's value (determined via appraisal)

• How much you owe on your mortgage

• The lender's CLTV and loan caps

These numbers set the very top of the range of potential HELOC limits you could see. Lenders are then going to look at your other qualifications when deciding how much of that range to let you borrow. 

Lenders will also consider:

• Your credit history. You don't need excellent credit to get a HELOC, but at least fair credit is recommended.

• Your income. Lenders will check that you have steady income sufficient to cover your existing debts and the new loan. 

• Your existing debts. Part of calculating if the new loan is affordable is looking at how much you spend on existing debts each month. An ideal debt-to-income ratio (DTI) is below 36%, but anything below 43% could still be acceptable.

HELOCs are often easier to qualify for than other types of credit. HELOCs are secured by your home, meaning lenders could foreclose on and sell your house if you stop making payments. This increases the risk for you, but it decreases the risk for the lender, so they are often a bit more forgiving on things like your credit scores.

How lenders calculate your HELOC limit (step-by-step)

Each lender will use its own process, but here's the general breakdown:

1. Determine your home's current market value.

2. Multiple by the lender's max CLTV percentage.

3. Subtract the current mortgage balance.

4. Adjust for credit and income factors, as well the lender's loan limits.

Let's look at this in action. Consider Harley, a homeowner in need of a HELOC. Here's how Harley's max HELOC calculation might look:

1. Harley's house is appraised at $250,000.

2. The lender has a max CLTV of 90%, so $250,000 x 0.9 = $225,000.

3. Harley's mortgage balance is $150,000, and $225,000 - $150,000 = $75,000.

4. Harley has good credit and no other debt, so the lender offers the full $75,000 HELOC maximum.

Why your HELOC amount may be lower than the maximum

You might qualify for the lender's max HELOC size—or you might get less (or nothing). Here's why you might get a lower-than-max offer:

• Your DTI is too high. Lenders won't give you more money if they don't think you can afford the debt you already have.

• You don't have enough equity. If your home's value is too low (or your mortgage balance is too high), the CLTV ratio could be too high for the top HELOC size.

• Your credit history has some bumps. You don't need perfect credit for a HELOC, but a higher credit score could help you maximize your HELOC potential.

How to estimate your HELOC amount before applying

You could estimate your HELOC limits in a few ways:

• Crunch the numbers yourself. Multiple your home's value by 85%, then subtract your mortgage.

• Use an online calculator. Input your information and let the HELOC calculator do the math.

• Prequalify with a lender. Prequalification uses a soft credit pull to give you an estimate of the terms you might qualify for when you apply. Soft credit pulls don't impact your credit.

It's a good idea to get prequalified quotes from a few lenders to compare your options before you choose a loan. Start by getting a no-obligation HELOC quote through Achieve Loans.