What is the maximum amount you can get with a home equity loan?

Home equity loans and HELOCs use the equity you own, and these loans are secured by the value of your home. Lenders can offer competitive interest rates, usually similar to those on a first mortgage. Just like banks or credit unions would do with first mortgages, lenders will guarantee the loan based on your equity value.

The maximum amount a lender will offer you is usually 80% of your combined loan-to-value (CLTV) ratio, which measures the difference between the value of your home and the amount you borrow. However, you may find lenders willing to lend you more than 80%.

Key Findings

Home equity loans are secured by home equity, so the loan amount is limited to the value of the equity in the home.
Homeowners can calculate their home equity by subtracting the amount they owe on their first mortgage from the value of their home.
Lenders can lend up to 80% of the home’s value. Lenders also consider the borrower’s employment history, credit score and income to determine the loan amount.

Credit limits

Home equity loans use your home as collateral. When you apply for this type of loan, your lender will place a second lien against your home, giving it the right to your home along with the first mortgage if you fail to make payments. Home equity loans are low risk for lenders if your loan is smaller than the money you have invested in your home.

Lenders have different guidelines for determining the loan size. Typically, your CLTV ratio, the loan-to-equity ratio in your home, is usually used to determine the amount.

CLTV coefficient formula.

Investopedia

Example of a home loan

Many lenders have a maximum CLTV ratio of 80%. If your home is worth $300,000 and you don’t have a mortgage, the maximum amount you can borrow is 80% or $240,000. However, if you currently owe $150,000 on your first mortgage, subtract that amount from your total. $240,000 minus $150,000 is $90,000. This will be your maximum loan amount.

Eligibility for a home equity loan also depends on your work history, income and credit score. These factors can also affect the interest rate offered on the loan.

Cost and conditions

There are other costs and fees to consider when applying for a loan. Borrowers with a home equity loan pay closing costs the same as they do for a first mortgage. These costs include a loan processing fee, a loan origination fee, an appraisal fee, and an application fee.

You can pay these costs in cash in advance or reduce the amount of your loan taken out to cover the fees. In addition, lenders typically require borrowers to pay points, with each point equal to 1% of the loan amount. On a $100,000 loan, one point equals $1,000.

Note

You can expect to pay between 2% and 5% of the loan amount towards costs.

What is the minimum home equity loan amount?

What is a combined loan-to-value ratio?

This is how banks and credit unions express the maximum amount they can lend against home equity. Typically, lenders can offer 80% or 85% of your equity value.

Am I eligible for a home equity loan?

To qualify for a home equity loan, you must have a significant amount of equity in your home. Most lenders evaluate a borrower’s credit score and income level.

Bottom line

Home equity loans are secured by home equity, so homeowners cannot borrow more than the value of the equity they have in their home. Equity is the value of your home minus the amount owed on the first mortgage plus other liens. Lenders can lend you up to 80% of this value. Keep in mind that you may find lenders willing to lend you more than this amount, but you’ll have to shop around.