What Are the Requirements to Take Out a HELOC?

To get a HELOC, you need enough home equity that your mortgage plus the new line stays under the lender's maximum combined loan-to-value ratio, plus a credit score, income, and debt-to-income ratio that meet that lender's limits. No federal rule sets those numbers, so they vary by lender within applicable state-law limits. Your credit limit is usually your home's appraised value times the lender's maximum combined loan-to-value, minus what you owe on your mortgage. The lender also values the home and sets occupancy rules for each program.

What do lenders check before approving a HELOC?

The FTC says the amount you can borrow and your rate depend on your income, your credit history, and the market value of your home. In practice, a lender reviews six things:

How much equity do you need?

Home equity is your home's value minus what you owe on it. How home equity works explains how it grows. Lenders measure it with the combined loan-to-value ratio (CLTV): all loans secured by the home, including the full HELOC limit, divided by the home's value.

Each lender sets its own maximum CLTV, subject to state-law limits. Texas Constitution Article XVI, Section 50(a)(6)(B) and (t)(5) caps combined borrowing on a homestead (your main home) at 80% of its fair market value when the line opens. That cap includes the full HELOC limit plus outstanding balances on other debts secured by the home. Federal bank guidelines set no fixed cap for home equity lending on an owner-occupied home, but they tell banks to require mortgage insurance or additional assets pledged as security, such as insured deposits, on any such loan at 90% or more of the property's value. Ask each lender for its maximum. If a lender caps CLTV at 85%, you need more than 15% equity before it can offer any line at all.

How do you work out your credit limit?

The CFPB describes the usual formula: a percentage of your home's appraised value, minus the amount you owe on your mortgage.

Worked example: Your home appraises at $450,000 and you owe $250,000 on your mortgage, so you have $200,000 in equity (44%).

The lender can approve a smaller line than the formula allows if your income or debt-to-income ratio cannot support payments on the full amount. If you have another loan secured by the home, such as an earlier home equity loan, subtract that balance too.

What credit score and debt-to-income ratio do you need?

Credit score. There is no federal minimum. Each lender sets its own. Approved HELOC borrowers tend to have strong credit: in the Mortgage Bankers Association's 2025 Home Equity Lending Study, the average FICO score on HELOCs made in 2024 was 771, and the average CLTV at closing was 51%. A lower score can still qualify with some lenders, but because the rate depends on your credit history, it generally means a higher rate. How HELOC rates are calculated explains how your credit history affects your rate.

Debt-to-income ratio (DTI). DTI is all your monthly debt payments divided by your gross monthly income. The federal ability-to-repay rule that sets underwriting standards for most mortgages does not apply to HELOCs, and the CFPB notes that different lenders and loan products have different DTI limits. Ask each lender for its maximum and how it counts the HELOC payment. How DTI is calculated has more examples.

Worked example: Your gross income is $9,000 a month. You pay $1,900 on your mortgage, $450 on a car loan, and $250 on a student loan, a total of $2,600, so your DTI is $2,600 / $9,000 = 28.9%. If the lender counts an interest-only payment on a full $110,000 line at 8.00% ($110,000 x 0.08 / 12 = $733.33), your DTI becomes $3,333.33 / $9,000 = 37.0%.

How does the lender verify income and value the home?

Income. The lender verifies that you can make the payments, so have recent pay stubs, W-2 forms or tax returns, and your latest mortgage statement ready.

Home value. Many lenders order an appraisal, and the CFPB lists an appraisal fee among common HELOC costs. For banks, federal rules require a state-licensed or certified appraiser only when a residential transaction is over $400,000. On a smaller line, the bank must still obtain an evaluation of the property, which can be less detailed than a full appraisal. Ask which type the lender will use and what it costs.

Do you have to live in the home?

Occupancy rules depend on the lender's program. Ask whether it lends on your property type (main home, second home, or rental) and what maximum CLTV applies to it. The FTC notes that the 3-business-day right to cancel applies only when the line is secured by your main home, not a vacation or second home. State your occupancy accurately: under federal HELOC rules, fraud or material misrepresentation in connection with the plan is one of the few grounds that let a lender close the line and demand the full balance.

The agreement will also require you to keep homeowners insurance on the property, and the CFPB's official commentary lists failing to keep required insurance as another ground for closing the line. Some agreements also prohibit renting out the home while the line is open, so read that clause if you might move and rent the house.

What minimum draw and balance terms should you check?

Approval sets the maximum, but the agreement can also set minimums. The CFPB lists three kinds:

• Minimum draw: some plans require you to borrow at least a set amount each time, such as $300. Texas Constitution Article XVI, Section 50(t)(2) requires at least $4,000 per draw on a homestead HELOC.
• Initial draw: some plans require you to take a set amount when the line opens, so you start paying interest right away.
• Minimum balance: some plans require you to keep a minimum amount outstanding, which means you keep paying interest on it as long as the line is open.

If you want the line only as a backup, look for a plan with no initial draw and no minimum balance. Lenders must disclose these terms, including minimum draw amounts and limits on the number of draws, before you open the line. What a HELOC is and how it works covers the draw and repayment periods. If you are weighing a HELOC against a cash-out refinance, what it means to refinance a mortgage explains the other path.