How much home equity can I borrow?

Most lenders allow borrowing up to 80-85% of your home's value minus your mortgage balance. Example: home value: $400,000. 80% of value: $320,000. Minus mortgage balance: $250,000. Maximum you can borrow: $70,000. Some lenders allow up to 90% LTV for excellent credit. Minimum equity to borrow: most lenders require at least 15-20% equity in the home.

HELOC vs home equity loan: which is better?

Home equity loan is better when: you know the exact amount you need. You want a fixed interest rate (predictable payments). You are doing a one-time project (kitchen remodel, debt consolidation). HELOC is better when: you need flexibility (draw funds as needed). The total cost is uncertain. You want to borrow only what you need when you need it. You want lower upfront costs (many HELOCs have no closing costs). The key difference: home equity loan = lump sum with fixed rate. HELOC = revolving credit with variable rate. If interest rates are low: HELOC (take advantage of the low variable rate). If rates are rising: home equity loan (lock in a fixed rate).

What credit score do I need for a home equity loan?

Minimum: 620 for most lenders. Best rates: 740+. 620-679: you can qualify but expect higher rates and stricter terms. 680-739: good rates, most lenders will approve. 740+: best rates and most favorable terms. Other factors: debt-to-income ratio (below 43%). Equity (at least 15-20%). Stable employment and income. Payment history on your current mortgage. To improve your chances: pay down existing debt before applying. Check your credit report for errors. Avoid opening new credit accounts in the months before applying.

Is a home equity loan a good idea for home improvements?

Often yes, for the right projects. Good uses: kitchen or bathroom remodel (high ROI). Adding a bedroom or bathroom. Roof replacement. Energy-efficient upgrades. These increase your home's value, which can offset the cost of borrowing. The interest may be tax-deductible if used for home improvements (consult a tax advisor). Bad uses: vacations, cars, or other depreciating expenses. Consolidating debt if you have not addressed the spending habits that created the debt. Borrowing more than the improvement will add in value. The rule of thumb: borrow against your home only for things that maintain or increase the value of the home. Using home equity for consumption puts your home at risk without building any lasting value.

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Comparisons

Home Equity Guide: HELOC vs Home Equity Loan & How It Works

Lumberama Editorial Team, Home Finance & Equity Specialists Oct 26, 2026 10 min read

What Is Home Equity?

Home equity is the difference between your home's current market value and what you owe on your mortgage.

Example: Home value: $400,000. Mortgage balance: $250,000. Home equity: $150,000.

How equity builds: Paying down your mortgage (each payment reduces the balance). Home appreciation (your home increases in value over time). Home improvements (renovations can increase value). Making a larger down payment.

How to access equity: Home equity loan (lump sum). HELOC (line of credit). Cash-out refinance (replace your mortgage with a larger one).

HELOC vs Home Equity Loan

Home equity loan: A lump sum of money at a fixed interest rate. Fixed monthly payments for a set term (5-30 years). Like a second mortgage. Best for: one-time expenses with a known cost (kitchen remodel, debt consolidation). Rates: 7-10% (varies by market and credit).

HELOC (Home Equity Line of Credit): A revolving line of credit (like a credit card secured by your home). Draw period: 5-10 years (borrow as needed, interest-only payments). Repayment period: 10-20 years (pay back principal + interest). Variable interest rate (can go up or down). Best for: ongoing expenses, projects with unknown final cost, emergency fund. Rates: 7-10% (variable).

Cash-out refinance: Replace your existing mortgage with a new, larger one. You receive the difference in cash. Results in one mortgage payment (not two). Best when: current rates are lower than your existing rate. Rates: whatever current mortgage rates are.

Requirements

Typical requirements: Minimum equity: 15-20% (most lenders require you to retain at least 20% equity after borrowing). Credit score: 620+ (680+ for best rates). Debt-to-income ratio: below 43%. Stable income and employment.

How much can you borrow? Most lenders allow you to borrow up to 80-85% of your home's value minus your mortgage. Example: home value $400,000 x 80% = $320,000. Minus mortgage balance $250,000. Maximum borrowing: $70,000. Some lenders go up to 90% LTV (loan-to-value) for excellent credit.

Costs and Considerations

Closing costs: Home equity loan: 2-5% of the loan amount. HELOC: often lower (some lenders offer no closing costs). Cash-out refinance: 2-5% of the new loan amount.

Interest deductibility: Interest may be tax-deductible if the funds are used for home improvements (consult a tax advisor). The Tax Cuts and Jobs Act of 2017 limited deductibility to funds used to buy, build, or substantially improve the home.

Risks: Your home is collateral. If you cannot make payments, you could lose your home. Variable HELOC rates can increase significantly. Borrowing more than the home is worth (being underwater) if values drop. Over-borrowing for non-essential expenses.