Applying for a home equity line of credit (HELOC) can feel complicated, but it doesn’t have to be.
A HELOC is a revolving line of credit secured by your home. That means a HELOC lets you borrow against your equity, and generally only pay interest on what you use. Its flexible borrowing options make it an ideal option for phased expenses like home renovations, education costs, and even debt consolidation.
Read on to learn how to apply for a HELOC, and the key factors that lenders will consider to determine your eligibility.
Step 1: Check your eligibility
Lenders generally evaluate the same core areas when looking at HELOC eligibility. Those include:
Home equity and CLTV
You’ll need enough equity in your home. Many lenders will want you to have at least 15% to 20% equity in your home to qualify. They’ll also generally cap your total borrowing using combined loan-to-value (CLTV) rules.
CLTV is calculated by weighing your existing mortgage and any other home equity loans against the value of your home.
Many lenders cap CLTV at 80% to 85%, although Lower allows up to 95%.
CLTV caps can mean that, even if you have some equity in your home, you might not qualify for a HELOC. If you’re applying for an HELOC with an 80% CLTV cap and your current mortgage and home equity loans add up to 81% of the value of your home, you wouldn’t qualify even though you’ve got equity built up.
Credit score and debt-to-income ratio (DTI)
Eligibility and pricing usually improve with stronger credit and lower debt-to-income ratio, or DTI. Your debt-to-income ratio is calculated by dividing your recurring monthly debts against your gross pre-tax monthly income.
Step 2: Gather the documents you’ll need
Most lenders ask for documentation to verify identity, income, and the property.
Common HELOC document checklist
- Government-issued ID
- Recent pay stubs or other proof of income
- W-2s and/or tax returns, especially for self-employed borrowers
- Recent mortgage statements
- Your homeowners insurance declarations page
- Property tax bill
- Bank statements or asset documentation as requested
You should make sure your credit is unfrozen before applying. Frozen credit can stall underwriting.
Step 3: Compare lenders
Shopping matters because HELOC offers can differ between lenders.
When comparing, focus on:
- Rate structure: Most HELOCs have a variable interest rate, which means rates can change over time. Some lenders offer fixed interest rates instead, which keep payments more predictable.
- Margin and index: HELOCs usually have a benchmark rate, which is often tied to prime. Lenders usually add an additional amount to that rate, called the lender’s margin. Check out what various lenders are adding to the benchmark rate to get the best offer for you.
- Fees: Different lenders charge different fee amounts on HELOCs. Common fees include appraisal, origination, annual maintenance fees, inactivity fees, and early closure fees. It’s important to get a picture of all the fees you’ll be paying before you commit to a HELOC.
- Terms: HELOCs often have draw periods, where you can borrow money and may only pay interest on what you borrow, and repayment periods, where you pay back what you owe. Term lengths vary, with draw lengths usually ranging between three and 10 years and repayment periods ranging from 10 to more than 20 years. Different lenders offer different terms, so shop around for the terms you want.
- Access: Find a lender that lets you take out money how you want to. Access options vary, from card-style access to checks or online transfers.
Step 4: Submit your application
Most major lenders allow you to apply online, by phone, or in a branch.
After you apply, the lender will typically:
- Pull credit
- Verify income and debts
- Order (or validate) a home valuation
- Begin underwriting review
Step 5: Home valuation and appraisal
Many HELOCs require a home valuation. That can be a traditional in-person appraisal, or an automated valuation model (AVM) in some cases, depending on the lender and property.
Your home’s validated value can affect whether you’re approved, your credit limit and your CLTV eligibility
Step 6: Underwriting, approval, and closing
Underwriting is where the lender confirms details like your identity, income, debts, home value, and compliance requirements. This stage can take days to weeks depending on documentation, valuation timing, and lender capacity.
Then comes closing, where you sign final disclosures and loan documents. At that point, you’ll receive instructions for accessing your line of credit.
For many HELOCs secured by a primary residence, federal rules generally provide a three-day window in which you can cancel the loan if you change your mind.
How long does it take to get for a HELOC?
Timelines vary by lender, but online applications take just minutes and many HELOCs close in less than a week. That isn’t universal, however. If an appraisal is needed and documentation takes more time, it can take weeks.
You can boost your chances of a speedy approval by:
- Getting your documents ready before you apply
- Responding quickly to underwriter requests
- Knowing your mortgage balance and approximate home value
- And avoiding major credit moves, like other new loans while your application is in progress
HELOC alternatives
A HELOC isn’t the only way to tap into your equity. If you want a fixed-rate, lump-sum option that features predictable payments, a home equity loan might be a better fit for you.
Alternatively, a cash-out refinance is another common way to get cash from your home’s equity. That refinance replaces your existing mortgage with a new, larger loan and lets you take the difference as cash.
The Bottom Line
Applying for a HELOC is manageable when you treat it like a process: confirm fit, pre-check eligibility, gather documents, compare offers, and move quickly through valuation and underwriting.
FAQ: Applying for a HELOC
What are the basic qualifications to apply for a HELOC?
Most lenders look for sufficient home equity, good credit, manageable DTI, steady income, and reliable payment history.
What documents are needed to apply for a HELOC?
You’ll generally need documents to show proof of income, mortgage statements, property tax/insurance documents, and identification. More documents might be required depending on the lender and your personal situation.
How can I speed up my HELOC approval?
Have documents ready, reply fast, and make sure your credit is accessible for checks. Being flexible with valuation scheduling can also help.
