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You have choices when you own a home. You might be looking for ways to pay for a kitchen remodel, pay off high-interest credit card debt, or pay for college. You can get that money when you need it most with a home equity line of credit.
I've helped hundreds of people get HELOCs, and to be honest? At first glance, the requirements may seem like too much. But here's what I always tell people in Louisville and beyond: knowing what lenders want gives you the power to get ready. That preparation is what makes the difference between getting approved and getting the best terms.
Let's make sure we all know what a HELOC is before we talk about the requirements. It's like a credit card that your house backs up. You are given a credit limit, and during the "draw period," which is usually 5 to 10 years, you can borrow money whenever you need it. You only have to pay interest on what you really use, not the whole credit limit.
After the draw period is over, you start the repayment period, which usually lasts 10 to 20 years. You are now paying back what you borrowed with both principal and interest. Many homeowners like this flexibility because they want to be able to choose when and how much they borrow.
That being said, your home is the security. If you don't pay, you could lose your home. This isn't meant to scare you; it's just to make sure you know what you're getting into.
Different lenders have different credit score requirements for HELOCs, but Experian (2025) says that most borrowers need a FICO Score of at least 680 to get one. For their best rates, some lenders want scores of 720 or higher.
The truth is that your credit score has a direct effect on your interest rate. According to Bankrate data from July 2025, borrowers with scores above 700 usually get the best HELOC rates. On the other hand, borrowers with scores in the low 600s may have to pay rates that are a full percentage point or more higher.
If you want to borrow $50,000, If you pay back the loan at an 8% rate, you might have to pay about $605 a month. But if your credit score is lower and the rate goes up to 9%, you'll have to pay $633 a month. That difference adds up to more than $5,000 in extra interest over the course of 15 years.
If your credit score is lower than average, don't think you have no other options. We have cash-out refinancing programs at AmeriSave that might take lower credit scores than regular HELOCs do. For instance, our Conventional cash-out refinance programs usually only require a credit score of 620 or higher, while our FHA and VA cash-out refinance options may only require a score of 550 or higher for qualified borrowers.
You need enough equity in your home to borrow against it in order to get a HELOC. Your home's current market value minus what you still owe on your mortgage and any other liens is your home equity.
Let's go through an actual example. Picture your house in a stable neighborhood that was recently valued at $350,000. You owe $210,000 on your mortgage after seven years of payments. That means you have $140,000 in home equity, which is the difference between what your home is worth and what you owe.
But here's the problem: most lenders won't let you borrow all of your equity. They set limits with something called the combined loan-to-value ratio, or CLTV. Most lenders limit your CLTV to 85%, but some may go as high as 90%, according to Bankrate (2025).
This is how the math works in our case:
The lender will only let you borrow $87,500, though, because they want to keep that 85% CLTV ratio. This is good for both you and the lender if home values go down.
It's easier to get a HELOC with good terms if you have more equity and a lower loan balance. If you've been making regular payments on your mortgage or bought your home when the market was down and saw its value go up, you're in a better position.
Your debt-to-income ratio (DTI) tells you how much of your gross monthly income goes to paying off debt. This helps lenders figure out if you can handle more debt from a HELOC.
NerdWallet (2025) says that most lenders will only approve a HELOC if the borrower's DTI is 43% or lower. However, some lenders may go up to 50% for very strong borrowers.
Let's figure out what this means for you. Add up all of your monthly debt payments, such as your mortgage, car loans, student loans, minimum credit card payments, and any other bills you have to pay. After that, divide that number by your gross monthly income before taxes.
You pay $450 a month for a car loan, $1,800 a month for a mortgage, and $200 a month for the minimum payments on your credit cards. That means you owe $2,450 every month. If you make $7,000 a month before taxes, your DTI is 35% right now:
$2,450 divided by $7,000 equals 0.35 or 35%.
The lender now figures out how much your HELOC payment will be. If you borrow $50,000 at 8% interest and pay it back over 15 years, your monthly payment would be about $478. With this new debt, your total monthly payments will be $2,928. Your new DTI would be:
$2,928 divided by $7,000 equals 0.42 or 42%.
You'd probably still qualify because you're below the usual 43% threshold at 42%. But if your DTI was already 40% before the HELOC, that extra payment would raise it to 47%, which might mean you need to find a lender who is more flexible or borrow less money.
Getting approved is easier the lower your DTI is. If you're getting close to the limit, you might want to pay off some of your existing debt before applying for a HELOC.
Most HELOCs have interest rates that change based on the prime rate, which changes when the Federal Reserve makes policy decisions. This is not the same as fixed-rate loans like home equity loans or traditional mortgages.
In September 2025, Bankrate said that the average HELOC rate was 8.05%, which was a big drop from over 10% in early 2024. This drop is good news, but because it's variable, your rate and payment can change over time.
This is how it works in real life. When the Federal Reserve lowered rates by 0.25% in September 2025, HELOC rates usually went down within one to two billing cycles. If you had a $60,000 HELOC balance at 8.50%, the rate cut might have brought your rate down to 8.25%, which would have lowered your interest-only payment from about $425 per month to about $413.
But the opposite happens when rates go up. The Truth About Mortgage (2025) says that the Federal Reserve raised rates 11 times between early 2022 and 2023, which made HELOC rates go from about 3.25% to more than 8.50%. People who borrowed money and made small payments saw their payments more than double.
Some lenders now offer hybrid or convertible HELOCs that let you lock in a fixed rate on all or part of your balance, sometimes for an extra fee. If you're worried about payments changing, you might want to look into this feature.
Many borrowers find fixed-rate options like cash-out refinancing reassuring because they know exactly how much they will have to pay each month. You'll know exactly how much you have to pay each month for the whole loan term, which will make budgeting easier.
You need to show lenders that you can make the HELOC payments. You usually don't have to have a certain amount of income, but you do have to show that you have steady, verifiable income.
You should be ready to show recent pay stubs, W-2 forms from the last two years, tax returns, and bank statements. If you work for yourself, lenders may ask for more paperwork, such as business tax returns or profit and loss statements.
The lender uses this information to figure out your DTI and make sure you have enough steady income to make the new payment. Be ready to talk about your job changes or irregular income if you've recently changed jobs. Sometimes, having strong qualifications in other areas can make up for worries about getting a job.
Your history with your current mortgage is very important. Lenders look at your payment history to see how trustworthy you are as a borrower.
Experian (2025) says that having a long history of paying your mortgage on time can help you get a higher credit limit and better rates. On the other hand, if you've been late on one or two payments in the last year, it could affect your application or lead to worse terms.
If you've had trouble paying in the past but have since built a good track record, write down what caused the problems and how you've fixed them. Lenders like it when you are open and show them proof that your finances have gotten better.
Before giving you a HELOC, most lenders want a professional appraisal to find out how much your home is worth on the market right now. This isn't just to protect the lender; it's also to make sure you're not borrowing more than the item is worth.
The appraisal usually costs between $300 and $600, but it can cost more for unusual properties or properties in remote areas. The appraiser will look at the condition of your home, compare it to recent sales of similar homes in your area, and write a detailed report.
If your home is worth less than you thought, you will have less equity and may not be able to borrow as much. On the other hand, if the value of your home has gone up since you bought it, you may have more equity than you thought.
We don't offer traditional HELOCs at AmeriSave, but our cash-out refinancing options are worth looking into as an alternative. When you do a cash-out refinance, you get a new, bigger mortgage and get the difference in cash.
This is why a lot of borrowers choose this path. First, cash-out refinancing usually comes with fixed interest rates, which means you don't have to worry about changing payments. Second, our programs might accept lower credit scores than traditional HELOCs do, especially when it comes to FHA and VA loans. Third, you make one monthly payment instead of two, one for your mortgage and one for your HELOC.
Different lenders have different requirements for qualifying, and their fees and interest rates are also different. Look into your options carefully and pick the one that works best for you. We believe in being open, which is why we make it easy for you to see how our products stack up against others on the market.
Most people who want a HELOC in 2025 will need a credit score of at least 680, enough home equity with a maximum CLTV ratio of 85%, and a DTI of less than 43%. You will have to agree to variable interest rates and show proof of your income and work history.
Your home equity is the value that has built up over the years through mortgage payments and the value of your property going up. Getting to that equity can give you financial freedom when you need it, but you need to make sure you can comfortably make the payments without putting your home at risk.
If the requirements for a HELOC seem too hard, keep in mind that there are other options, like cash-out refinancing, that may have different qualification standards that fit your needs better. The most important thing is to know what your options are and pick the one that helps you reach your financial goals.
Most lenders will only give you a HELOC if your FICO score is at least 680. However, some lenders will give you a loan even if your score is as low as 620 in some cases. However, according to industry data, you will usually need a score of 720 or higher to get the best interest rates. Your credit score not only decides if you get approved, but also what interest rate you get. People with scores over 740 usually get the best rates. This could save them thousands of dollars over the life of the loan compared to people with scores in the mid-600s. If your score is below the normal level, you might want to work on raising it before you apply. You could also look into other options, like cash-out refinancing, which may have more flexible credit requirements depending on the type of loan.
To get a HELOC, you usually need at least 15–20% equity in your home, which means a loan-to-value ratio of 80–85%. This means that if your home is worth $400,000, you would usually need to have at least $60,000 to $80,000 in equity. But just because you have the minimum equity doesn't mean you can borrow all of it. Most lenders limit your combined loan-to-value ratio to 85%. This means that your primary mortgage and HELOC can't be worth more than 85% of your home's value. Some lenders, especially credit unions, may go as high as 90% CLTV. However, these higher ratios usually come with stricter rules in other areas, such as checking your credit score and income. Your application gets stronger and the terms you get are more likely to be better the more equity you have beyond the minimum. Remember that lenders use a current appraisal to figure out how much equity you have, not how much you paid for the house or how much you think it's worth.
A HELOC is a second mortgage that works like a credit card. It gives you a line of credit that you can use as needed during the draw period. You usually have to pay a different interest rate every month, and you have to make separate payments on your HELOC and your main mortgage. You take out a new, bigger loan to pay off your current mortgage with a cash-out refinance. You then get the difference in cash as a lump sum. This option usually has a fixed interest rate, combines all of your payments into one monthly payment, and may make it easier to budget because your rate won't change. It depends on your situation which choice is best. HELOCs are flexible because you can only get money when you need it or aren't sure how much you'll need. If you want a lump sum, prefer fixed payments, or can get a lower rate than your current mortgage, cash-out refinancing makes more sense. Also, if you have a very low rate on your current mortgage, getting a HELOC as a second loan keeps that low rate. A cash-out refinance, on the other hand, would replace it completely with the current market rate.
Yes, your payment can and probably will change over the life of the loan because most HELOCs have variable interest rates that are linked to the prime rate. The Federal Reserve's decisions about the prime rate affect it. It usually changes within one to two billing cycles after the Fed changes rates. Many people who took out a HELOC between 2022 and 2023 saw their rates go up by more than 5 percentage points. This was because the Federal Reserve raised rates to fight inflation. Rates have been going down more recently, since the Fed cut rates in September 2025. You might only have to make interest-only payments during the draw period, and these payments will change as rates change. Once you start paying back your loan, your payments usually go up a lot because you're now paying both the principal and the interest. Some lenders now offer hybrid or convertible HELOCs that let you lock in a fixed rate on all or part of your balance. However, this option may come with fees. If you want to be sure of your payments, you might want to ask potential lenders about fixed-rate conversion options or look intoother options like cash-out refinancing or fixed-rate home equity loans.
Most lenders want a debt-to-income ratio of 43% or less for HELOC approval. However, some may accept ratios as high as 50% for borrowers with great credit and a lot of equity. To find out your DTI, divide your total monthly debt payments by your gross monthly income. When lenders look at your application, they figure out a new DTI that includes the HELOC by adding your estimated HELOC payment to your current debts. If your DTI is currently 38% and the projected HELOC payment would raise it to 46%, you may have trouble getting approved, need to borrow less, or need to find lenders with more flexible DTI requirements. You can get a better DTI before you apply by paying off your debts, especially credit cards or personal loans with high balances, or by making more money. Keep in mind that lenders look at your gross income before taxes and other deductions, so make sure you're using the right number. If you work for yourself or have an income that changes from month to month, lenders usually average your income over the past two years. This could mean that your qualifying income is lower than you thought.
The time it takes to get a HELOC approved and closed can range from two to six weeks, but this can vary a lot depending on the lender and your own situation. There are a number of steps in the process, such as reviewing the initial application, checking the applicant's income and employment, checking their credit, scheduling and completing the home appraisal, reviewing the underwriting, and giving final approval. The appraisal itself can take anywhere from one to three weeks, depending on how busy the appraiser is in your area. If your paperwork isn't in order, your income sources aren't clear, or you're worried about the value of your property, the process may take longer. You can speed things up by getting all your paperwork ready before you apply. This includes recent pay stubs, tax returns, bank statements, mortgage statements, and homeowners insurance information. If your lender asks for more information or clarification, you should respond right away. Some lenders will process your application faster for an extra fee. You should know that you usually have three days after getting approved to change your mind about the loan before the HELOC officially closes. This is a federal rule that protects borrowers by giving them time to think about the loan again.
When you apply for a HELOC, your credit report will show a hard inquiry. This can lower your credit score by a few points, usually five points or less, for a short time. But this effect is usually small and only lasts a few months. How you handle the HELOC after it is approved has a bigger effect on your credit. If you don't use all of your new credit right away, opening a new credit line can actually improve your credit utilization ratio. Your credit score is mostly based on your payment history, so making payments on time every time is the best way to build a good one. On the other hand, not making payments or having a balance that is too high compared to your credit limit can hurt your score a lot. If you want to find the best HELOC rates, you should try to fill out all of your applications in a short amount of time, usually between 14 and 45 days, depending on the scoring model. Most credit scoring models see more than one request for the same type of loan during this time as one request, which has less of an effect on your score. One more thing to think about: after you open the HELOC, don't apply for any other big loans, like car loans or credit cards, for a few months. Lenders may see multiple recent inquiries as a red flag.
Your lender may freeze your line of credit or lower your available credit limit if the value of your home drops a lot after you open a HELOC. This is to keep the loan-to-value ratio at an acceptable level. This safety measure stops you from borrowing more than your home can handle as collateral. Lenders usually keep an eye on property values on a regular basis and can change credit lines based on how the market is doing. Also, if your financial situation changes and the lender thinks you might have trouble making payments, they can stop you from taking out more money, even if the value of your home hasn't changed. If you've already taken money out before a freeze, you'll still have to pay back that amount according to the terms of your loan. Another risk you should know about is that if your home's value drops below what you owe on your combined mortgage and HELOC, you will be "underwater" or "upside down" on your home. If you want to sell or refinance, this limits your options because you would need to bring cash to closing to make up the difference between the sale price and your total debt. This kind of thing happened a lot during the housing crisis of 2008, and it shows that using home equity can be risky, especially in markets that are changing quickly.
In theory, yes. Once your HELOC is approved, you can usually use the money for anything you need, like home improvements, paying off debt, school costs, medical bills, or anything else. But how you use HELOC money does matter when it comes to taxes. The IRS says that after the Tax Cuts and Jobs Act of 2017, you can only deduct the interest you pay on HELOC debt if you use the money to buy, build, or make major improvements to the home that secures the loan. You can't deduct the interest on a HELOC if you use the money for things like paying off credit cards or going on vacation. When it comes to financial planning, it's usually better to use HELOCs to pay for things that add value or pay off high-interest debt than to pay for things that don't help your financial situation. A lot of financial advisors say not to use home equity for things that lose value quickly, like cars or things you buy and use up. Keep in mind that your home is the collateral for this loan. You could lose your home if you can't make the payments, no matter what you used the money for. Talk to a tax professional about whether you can deduct interest on your taxes for your specific situation. Also, think carefully about whether borrowing against your home equity is in line with your long-term financial goals before you take out the money.
The fees for a HELOC can be very different from one lender to the next, so it's important to look at the total cost, not just the interest rate. An application fee, which is usually between $75 and $200, is a common fee that pays for the cost of processing your application and getting your credit report. Fees for appraisals usually range from $300 to $600, but they can be higher for unique or larger properties. You might have to pay origination fees or underwriting fees that are between 0.5% and 2% of the credit line amount. Some lenders will even waive these fees to get more borrowers. Fees for searching for and recording a title can add $100 to $300. Some lenders charge $50 to $100 a year just to keep the line of credit open, even if you don't use it. It's also common to have to pay an early closure fee of $300 to $500 if you close the HELOC within the first two or three years. If you don't use the line of credit within a certain amount of time, some lenders will charge you an inactivity fee. You may have to pay transaction fees every time you take money out. It's also a good idea to ask about any fees for paying off your loan early, locking in a low interest rate, or changing your variable-rate balance to a fixed rate. When you compare lenders, add up all of these possible costs. If you only need to borrow a small amount, a HELOC with a slightly higher interest rate but lower fees might be more cost-effective than one with a very low interest rate but high upfront costs.
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