What Is the Most You Can Borrow With a Home Equity Loan?


Home equity loans and HELOCs use the equity you own in your home as collateral. Because these loans are secured against the equity value of your home, lenders are able to offer extremely competitive interest rates: usually close to those of first mortgages. And just as with first mortgages, your bank or credit union will underwrite the loan based on the value of your equity.

This imposes an upper limit on the amount you can borrow through a home equity loan. The maximum amount a lender will offer you is typically 80%–85% of your combined loan-to-value (CLTV) ratio—a measure of the difference between the value of your house and how much you are borrowing. In this article, we’ll explain how this is calculated, highlight some other factors that can affect your maximum loan amount, and show you how to calculate your own maximum amount.

Key Takeaways

  • Since home equity loans are secured against your home, the amount you borrow is limited to the value of the equity in your home. 
  • Calculate equity by subtracting the amount you owe on your first mortgage from your home’s value.
  • Lenders may lend up to 85% of this value.
  • Eligibility for a home equity loan also depends on credit score and income level.
  • Home equity loans may have fees that may need to be paid up-front, further reducing the effective maximum amount of your loan.

How Much Can You Borrow With a Home Equity Loan?

Home equity loans use your home as collateral. When you apply for this kind of loan, your lender will place a second lien on your home, giving them rights to your home along with the first mortgage lien if you fail to make payments. This makes home equity loans very low risk for lenders as long as they lend you less than the money you have invested in your home.

In practice, each lender has different guidelines to determine how much they can lend to you. Typically, the most important part of these guidelines is what combined loan-to-value (CLTV) ratio your bank can offer. This is the ratio of the loan amount to the equity you own in your home. Your equity is the value of your home, minus any money you still owe on your first mortgage.

Here’s a simple example. Many lenders have a maximum CLTV ratio of 80%. Consider your home is worth $300,000, so the maximum you could borrow would be 80% of this—$240,000. However, let’s say that you currently owe $150,000 on your first mortgage. You must subtract this from the total amount, because the bank won’t lend you money you haven’t earned yet. $240,000 minus $150,000 is $90,000. So this would be your maximum loan amount.

That’s not quite the end of the story, though. Just as with a first mortgage, your eligibility for a home equity loan may depend on your employment history, income, and credit score. These factors may also affect the interest rate you are offered on your loan, because a lower credit score suggests you are at higher risk of defaulting on the loan.

The maximum amount you can borrow on a home equity loan depends on a variety of factors—not just how much equity you own in your home, but also your creditworthiness and income. It will also depend on the guidelines that individual lenders have in place.

Other Considerations

Though the calculations above will allow you to work out the raw maximum amount of home equity loan you can access, there are some other costs and fees that you should take into account when calculating the effective maximum loan available to you.

For example, when you take out a home equity loan you may have to pay many of the same closing costs associated with a first mortgage, such as loan processing fees, origination fees, appraisal fees, and recording fees. Unless you have a lot of cash on hand, these are likely to be paid for from the loan you take out, and will therefore reduce the maximum you receive.

Similarly, lenders may require you to pay points—that is, prepaid interest—at closing time. Each point is equal to 1% of the loan value. So on a $100,000 loan, one point would cost you $1,000. This upfront interest may save you money in the long run, but over the short term it will further reduce your maximum loan amount.

Finally, bear in mind that home equity loans may also have a minimum limit. Though some lenders will extend loans for $10,000, many won’t give you one for less than $35,000. This makes sense, because the costs of originating the loan can be quite high in comparison to small loan amounts.

How Do I Calculate My Maximum Home Equity Loan Amount?

You can get an idea of the maximum you can borrow by working out the value of the equity you have in your home—that’s the value of your home, minus what you owe on your mortgage. You may be able to get a home equity loan for up to 85% of this value.

What Is a Combined Loan-to-Value Ratio?

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

Am I Eligible for a Home Equity Loan?

In order to qualify for a home equity loan, you must own a significant amount of equity in your home. Some lenders also have requirements around your credit score or income level. It’s best to shop around when looking for a home equity loan, because eligibility and interest rates vary a lot between lenders.

The Bottom Line

Home equity loans are secured against your home, so you can’t borrow more than the value of the equity you hold in your home. Your equity is the value of your home, minus the amount you owe on your first mortgage. Lenders may be able to lend you up to 85% of this value.

In practice, your eligibility for a home equity loan will also depend on your credit score, income level, and other factors. These loans can also have significant fees, which may need to be paid up-front, further reducing the effective maximum amount of your loan.

Show some Love^^