How much equity can I borrow from my home?
Quick insights
- The amount of equity you can access depends on important factors such as the value of your home, your remaining mortgage balance, your credit profile and lender requirements.
- Mortgage lenders use your combined loan-to-value (CLTV) ratio to determine how much equity you can borrow.
- CLTV compares your mortgage balance and any new home equity debt to your home’s appraised value, with many lenders preferring a CLTV of 80% or less for favorable loan terms.
Home equity is valuable for homeowners for the financial opportunities it presents. But how much equity can you leverage for your goals? You can typically borrow up to 80% of your home’s appraised value, minus your current mortgage balance, though limits may vary by lender and loan type. Let’s review how the process works, including how lenders calculate how much you can borrow from your home.
How much home equity can you borrow?
When tapping into your home’s value, you can typically borrow up to 80% to 85% of its appraised value, minus your current mortgage balance. This limit varies by lender but ensures you retain sufficient equity in your property to meet their lending standards. Your borrowing capacity all depends on your financial profile, including your credit, monthly income and mortgage payment history.
The home equity borrowing formula
Lenders generally use a simple calculation to figure out your maximum borrowing amount, called the combined loan-to-value ratio (CLTV). This compares the total debt secured by your home, including your existing mortgage and any new home equity loan or HELOC, to your home’s appraised value. Here’s how it works:
- Find your home’s current value.
- Multiply by the lender’s limit, a percentage of your home’s appraised value.
- Subtract your current mortgage balance.
If the lender’s limit is 80%, the CLTV formula would be as follows:
(Home value x 0.80) - Current Mortgage Balance = Maximum Borrowing Amount
Using the example above:
($400,000 x 0.80) - $200,000 = $120,000
This formula provides a general estimate of how much equity may be available to borrow. Your actual borrowing limit will depend on the product type, lender requirements and your financial profile.
Home equity borrowing examples
The amount you can borrow will vary significantly based on the market value of your home and your remaining mortgage balance. The mortgage balance and amount of equity can substantially change your borrowing power.
Here are two examples to illustrate:
Example 1: More available equity
- Home value: $500,000
- Mortgage balance: $250,000
- Maximum CLTV: 80%
Calculation:
- $500,000 × 0.80 = $400,000
- $400,000 − $250,000 = $150,000
In this scenario, the homeowner could potentially borrow up to $150,000.
Example 2: Less available equity
- Home value: $400,000
- Mortgage balance: $300,000
- Maximum CLTV: 80%
Calculation:
- $400,000 × 0.80 = $320,000
- $320,000 − $300,000 = $20,000
In this example, the homeowner could potentially borrow up to $20,000.
These figures are provided solely for educational purposes. Consult with a lender for specific terms.
Factors that affect borrowing limits
After calculating your CLTV, lenders evaluate your financial health to determine your eligibility and maximum borrowing limit for a home equity loan or HELOC.
- Credit score: Many lenders look for a credit score of at least 620, but this threshold varies by lender. Maintaining scores of 700 or higher often leads to more favorable refinance rates and borrowing terms.
- Debt-to-income ratio (DTI): Lenders generally prefer a DTI below 43%. Your DTI ratio compares your monthly debt obligations to your gross monthly income. Some lenders may allow higher ratios depending on other aspects of your financial profile.
- Income and employment: A stable job history and predictable, documented income may strengthen your application. Your income and employment may also increase your borrowing capacity.
- Lender limits: Each lender sets its own maximum CLTV requirements. While 80% is common, others may allow qualified borrowers to access up to 85% or 90% CLTV. These different limits can significantly affect the amount of equity available to borrow.
Ways to increase home equity borrowing amount
- Shop multiple lenders: Borrowing limits, CLTV requirements and underwriting guidelines vary by lender. Comparing offers from multiple lenders can help you find one that offers terms to fit your goals.
- Pay down debt: Reducing credit card balances, auto loans, student loans and other outstanding debt can lower your DTI ratio. A lower figure may improve your chances of qualifying for a larger home equity loan or HELOC.
- Improve your credit score: Paying bills on time, reducing revolving debt and avoiding new credit inquiries may help improve your score over time. Borrowers with credit scores above 700 often qualify for better loan terms and may have access to higher borrowing limits.
- Request a new home appraisal: If local home values have increased since your last home appraisal, a new valuation may reveal additional equity. A higher appraised value can increase the amount available to borrow under your lender’s CLTV guidelines.
- Pay down more of your mortgage balance: Making extra principal payments reduces your outstanding loan balance and increases your equity position. Over time, this can create additional borrowing capacity and improve your CLTV ratio.
Determining how much home equity to borrow
Qualifying for a certain borrowing limit doesn’t mean that using it all is financially responsible. Before a home equity loan or HELOC is used, the new debt should align with your financial strategy and budget.
- Available equity: Leaving a portion of your equity untouched provides a vital financial cushion against market fluctuations or unexpected expenses.
- Borrowing purpose: Uses like home improvement projects, high-interest debt consolidation and other major expenses can support worthwhile financial goals.
- Monthly affordability: Repayment terms vary by product and lender, but home equity you borrow must be repaid. This is usually a monthly bill that should fit into your budget alongside your existing financial obligations. Reviewing your finances and using an affordability calculator can be helpful.
- Interest rates and loan terms: Your interest rate and repayment term can significantly impact the total cost of borrowing. Comparing your options can help you find the lender, product and a repayment structure that align with your budget.
What is the minimum home equity loan value you can borrow?
It depends on the lender’s policies and the equity in your home. A conservative guideline is 20% home equity. You can estimate the loan amount you’d qualify for using the CLTV formula: 80% of your home’s value minus your outstanding mortgage principal. That is your maximum borrowing amount.
In summary
Your borrowing limit depends on your home’s value, mortgage balance, credit profile and your lender’s CLTV requirements. While 80% is standard, well-qualified borrowers can often access higher limits.
To tap into your equity, explore Chase’s HELOCs and cash-out refinances. Speak with a Home Lending Advisor to understand your borrowing potential and find the right solution for your needs.
