Home Equity Loan Requirements
Quick answer: Most lenders want 20%+ equity after the loan (≤80% CLTV), a 620+ credit score (700+ for best rates), DTI ≤43%, and stable verifiable income. Use our free calculator to estimate borrowing power — no personal info required.
Most lenders use the same core criteria: enough equity, acceptable credit, stable income, and usually a primary residence. This guide explains what you need — and what commonly disqualifies applicants — so you can check eligibility before you apply.
Quick eligibility checklist
| Requirement | Typical lender standard | Your target |
|---|---|---|
| Home equity | ≥20% equity after loan (≤80% CLTV) | Use calculator |
| Credit score | 620+ minimum; 700+ for best rates | AnnualCreditReport.com |
| Debt-to-income (DTI) | ≤43% total; housing ≤31% | Include new HEL payment |
| Mortgage history | 12+ months on-time payments | Review mortgage statement |
| Property type | Primary residence (most programs) | Second homes vary by lender |
| Income docs | 2 years W-2s / tax returns + pay stubs | Gather before applying |
Credit score requirements
- 620–659: May qualify with higher rates and stricter equity limits
- 660–699: Broader lender approval; better rates than sub-660
- 700+: Best rate tiers on national surveys (e.g. ~8.12% avg 5-yr HEL)
- Average approved borrower: HELOC averages were ~763 (Q3 2024); HEL is similar at prime lenders
Tip: Pay down revolving balances before applying — utilization heavily affects scores.
Equity and CLTV (combined loan-to-value)
Lenders calculate: CLTV = (First mortgage + New HEL) ÷ Appraised home value
Most cap CLTV at 80%, meaning you must keep at least 20% equity after borrowing.
Example: Home worth $450,000, mortgage $280,000 → max HEL ≈ $80,000 — (450,000 × 0.80) − 280,000 = 80,000.
Debt-to-income (DTI)
Lenders add your proposed HEL payment to existing debts and divide by gross monthly income.
- Back-end DTI: Often max 43% (sometimes 45–50% with compensating factors)
- Front-end (housing): Often max 31% for housing costs alone
If a new HEL pushes DTI over the limit, you may need a smaller loan or pay down other debts first.
Income and documentation
Expect to provide: last 2 years tax returns; recent pay stubs (30 days) or P&L if self-employed; 2 months bank statements; current mortgage statement and homeowners insurance; list of other debts.
Gaps in employment or declining self-employment income are common denial reasons.
Who usually qualifies vs. who often doesn't
Usually qualifies
- Primary residence with verified equity
- Credit 660+ with clean mortgage payment history
- Stable W-2 income, DTI under 43% after new payment
Often disqualified
| Disqualifier | Why lenders decline |
|---|---|
| Credit below ~620 | Default risk; limited programs |
| Insufficient equity / CLTV > 80–85% | No cushion if home value drops |
| DTI too high | Can't afford combined payments |
| Recent bankruptcy | Waiting periods (often 2–4 years) |
| Foreclosure or short sale | Long seasoning requirements |
| Unverifiable income | Can't document ability to repay |
| Non-owner-occupied / some condos | Program restrictions |
Next steps
- Estimate your borrowing power (example defaults pre-filled)
- Review current rate averages (July 2026)
- Compare HEL vs HELOC if you need flexibility
- How to apply — 6-step checklist on our main guide
- Score below 620? See home equity loans with bad credit
- Pull credit and fix errors before rate shopping