HELOC and home equity loan requirements
This article provides general educational information about HELOCs and home equity loans. Chase currently does not offer home equity loans, and Chase HELOC availability varies by state (for example, not available in Texas). Speak with a Home Lending Advisor about products available in your area.
Quick insights
- Qualifying for a home equity loan or home equity line of credit (HELOC) usually requires a certain credit score, consistent income, sufficient home equity and a low debt-to-income ratio (DTI), but mortgage lenders’ criteria vary.
- Requirements for getting a HELOAN or HELOC typically include proof of income, verification of employment and a current home appraisal to confirm the market value of your home. Lenders also use this information to assess your ability to repay the loan and determine how much credit you may qualify for.
- If you decide a home equity loan or HELOC is not the right option, useful alternatives may include personal loans, cash-out refinancing and credit cards.
Exploring ways to access the equity in your home can open doors to a variety of financial opportunities, such as home renovation or debt consolidation. Understanding the different options available, such as a home equity loan or home equity line of credit (HELOC), can help you make a more informed decision about borrowing against the value of your home.
In this article, we’ll break down how to qualify for a HELOC or home equity loan, the key requirements for securing one and alternative financial methods.
Requirements for a home equity loan or HELOC
Lenders consider a variety of factors, and their standards can vary from one company to the next. To qualify for a HELOC or home equity loan, you generally need to meet the following requirements:
Sufficient home equity
Most mortgage lenders want you to maintain at least 20% equity after opening a HELOC or home equity loan. In other words, your total mortgage debt plus the home equity loan or HELOC should not exceed 80% of your home’s appraised value. For example, if your home is worth $300,000, 80% is $240,000. If you owe $200,000, you have $100,000 in equity, and you can borrow $40,000.
Good credit score (680+)
Your credit score represents your reliability and responsibility as a borrower. Higher scores can unlock competitive terms when qualifying for a HELOC or home equity loan. By many lending standards, a good credit score is 680 or higher. Some lenders may accept lower scores to open a home equity loan or HELOC. Requirements vary by lender and are not limited to the score alone.
Low debt-to-income ratio (DTI)
Your DTI ratio compares your total monthly debt payments to your gross monthly income. While requirements vary by lender, 43% or lower may be preferred. A lender may approve a HELOC or home equity loan with a higher DTI if you have compensating factors, such as an excellent credit score, substantial home equity, significant cash savings or a positive payment history.
Stable income
Mortgage lenders usually require certain documents that verify your income. Acceptable documents vary depending on the income sources but may include paystubs, W-2s, tax returns and bank statements.
Home appraisal
A home appraisal determines your home’s current market value, which helps assess the equity available for the HELOC or home equity loan. The appraisal involves a professional evaluating your property to estimate its worth, which can impact how much you can borrow. To confirm your home’s value, the lender may use different valuation methods depending on the loan amount, property type and overall risk—such as an automated valuation model (AVM), a desktop valuation, an exterior inspection or a full appraisal.
Loan-to-value (LTV) ratio
Mortgage providers generally look at your loan-to-value (LTV) ratio, which compares the amount you owe on your mortgage to the current market value of your home. A lower LTV typically improves your chances of qualifying because it means you’ve built more equity in your home.
For example, if your home is worth $400,000 and you owe $280,000, your LTV is 70%, meaning you’ve built 30% equity. This may help you qualify for a HELOC.
$280,000 ÷ $400,000 x 100 = 70% LTV
Disqualifications for a HELOC or home equity loan
Several factors can influence a lender’s decision, as they assess the risk of lending based on your ability to repay the HELOC or home equity loan. If you face any of the following, you may not be eligible:
- Insufficient home equity: Your total borrowed amount cannot exceed 80% of your home's value. This limit is your maximum LTV ratio and includes your primary mortgage plus any home equity loan or line of credit. If your current loan already equals 80% of your home's appraised value, you have no remaining equity to borrow against.
- Poor credit history or low credit score: A history of late payments, bankruptcies or other negative credit events can significantly impact your ability to qualify.
- Unstable income or high DTI: Borrowers with consistent and stable income minimize the lender’s risk. If your income appears irregular or insufficient to manage existing debts, it may raise concerns.
Alternatives to a HELOC or home equity loan
If a HELOC or home equity loan doesn’t seem like the right option for you, you may want to consider these alternatives:
- Personal loan: Personal loans are unsecured loans, meaning they don’t require collateral. They offer fixed or variable interest rates with a set repayment period. One potential advantage is that the approval process may be easier for individuals with good credit, but interest rates may be higher compared to secured loans. Chase does not offer personal loans.
- Cash-out refinance: Cash-out refinance involves refinancing your existing mortgage for more than you owe and taking the difference in cash. Your new mortgage may be larger, and you’ll make payments based on the new loan amount and terms. One potential advantage is access to substantial funds, potentially at a lower interest rate than other options, but it extends the term of your mortgage.
- Credit cards: Credit cards offer a revolving line of credit and require minimum monthly payments. One potential advantage is that credit cards can be useful for smaller, short-term expenses.
Each alternative has different benefits and drawbacks. You may want to consider your entire financial situation, the amount of money needed and repayment capabilities before selecting the option that meets your needs.
In summary
Navigating the world of home financing can seem complex, but understanding your options may make it more manageable. To be eligible for a HELOC or home equity loan, you will need equity in your home, a good credit score, stable income and a low DTI.
If a HELOC or home equity loan doesn’t seem like the right option for you, don’t worry. There may be alternatives that work for you, like personal loans, cash-out refinancing and credit cards. With a bit of research and professional guidance, you can take control of your financial future.
