HELOC qualification calculator

Are you looking for a low-cost, flexible way to borrow money? Many homeowners find that a home equity line of credit (HELOC) is the perfect solution, whether they’re looking to fund a DIY renovation project, consolidate debt, or enjoy extra peace of mind from having another financial buffer.

As with any loan, you’ll need to qualify, and your borrowing limit may vary. We'll cover the requirements and share a simple HELOC calculator to help you decide confidently.

How a HELOC works

A typical HELOC functions as a two-part series: a 5 to 10 year draw period, and a 10 to 20 year repayment period. You’ll be able to borrow money as you wish during the draw phase, up to your pre-approved credit limit, similar to a credit card. During this time, you’ll only be required to make interest-only payments.

After the draw period ends, your HELOC will transition into the repayment phase. You won’t be able to borrow any more money during this time, and you’ll instead shift to paying off any remaining balance on your HELOC with monthly payments that go toward principal and interest, just like your mortgage.

Pros of a HELOC

• HELOCs typically have lower interest rates than credit cards or unsecured personal loans.
• During the draw period, you may only need to make interest payments, keeping monthly costs lower at first.
• Interest paid on a HELOC may be tax-deductible if the funds are used for qualifying home improvements.

Cons of a HELOC

• HELOCs usually come with variable interest rates, which means your payments could increase over time.
• There may be fees, such as annual fees or closing costs, that add to the cost of borrowing.
• Since your home is used as collateral, you risk foreclosure if you can’t repay the loan.

HELOC requirements

In order to qualify for a HELOC, you’ll need to meet your lender’s requirements. Some lenders have strict HELOC qualification requirements and offer better terms to those who can meet them. Other lenders are more open to working with homeowners who may not have the best financial standing but are willing to pay a higher interest rate.

Most lenders, however, require the following for HELOC eligibility:

Credit score

You’ll generally need a credit score of at least 620, although many lenders are more flexible when it comes to having bad credit. Note that most lenders will check your FICO score, which may be different than the VantageScore offered by most free credit score websites.‍

Combined loan-to-value (LTV) ratio

Most lenders require a combined LTV ratio of 80% or less. This is calculated by adding up all of the debts secured by your home — including your mortgage and your potential new HELOC — and dividing it by the appraised value of your home.

Debt-to-income (DTI) ratio

Most lenders will require you to have a DTI ratio of 45% or less to qualify. You’ll calculate this by adding up all of your minimum monthly debt payments and dividing it by your pre-tax monthly income. Remember to include any loans you may have co-signed for, such as your children’s student loans or an auto loan since lenders still include this in your own DTI ratio calculation.

How to use the HELOC qualification calculator

Enter the following details into the HELOC qualification calculator. Take some time now to look up the exact numbers so that you can get the most accurate results:

• Current home value: You can check how much your home is worth using free online tools.
• Mortgage outstanding balance: How much you have remaining on your current mortgage, plus any other debts secured by your home such as a home equity loan.
• Credit score range: Some banks provide customers with free FICO score updates; you may also obtain a free credit report here.
• Monthly income: How much you and any joint borrowers earn each month before taxes are taken out.
• Monthly expenses: Your total monthly minimum debt payments, including for any co-signed loans.

Point’s HELOC qualification calculator will then show you an estimate of how much you may be able to borrow with a HELOC based on your home equity, although keep in mind that lenders may vary. It’ll also show your LTV and DTI ratios, which you can use as you shop around to see which lenders you may qualify with.

Gauge your payments using this free HELOC payment calculator Excel spreadsheet.

How the HELOC application process works

Taking out a HELOC requires a bit more legwork than, say, a personal loan, but it’s generally much quicker than a mortgage. Here’s how it works:

Get pre-qualified

Most lenders allow you to check your eligibility and potential terms for a HELOC by answering a few questions on their website. You’ll need to provide your information so they can perform a soft credit check, which doesn’t impact your score. It’s best to do this with at least a few different lenders so that you can compare offers to get the best rate.

Submit a full application

Pick the offer that you’re happiest with and submit a full HELOC application with that lender. You’ll generally need to submit documentation such as your proof of ID, as well as financial details such as recent pay stubs, bank account statements, mortgage statements, tax returns, etc.

Complete lender underwriting

Your HELOC lender will generally require a current appraisal to determine the exact amount of equity in your home. Your lender will also work to verify your home’s title, any liens filed against your home, etc., to clear the path to approving your HELOC.

Sign the final paperwork

If you’re approved, you’ll get access to the closing papers and loan agreement in advance of signing them. Make sure you read through everything so you’re comfortable knowing how your HELOC works. If you’re still happy with the loan terms of the agreement, you’ll sign the contract and get access to your new HELOC.

HELOC alternatives

HELOCs are incredibly popular, but they’re not right for everyone. Consider whether one of these alternatives would work better for you before applying for a HELOC:

Home equity loan

A home equity loan works similarly to a HELOC, except it’s disbursed as a lump sum. Lenders tend to offer even lower rates on home equity loans — and they’re fixed rates, so your monthly payment won’t change over time. Home equity loans may be especially useful for one-time-only projects, such as installing solar panels on your home or for debt consolidation.

Cash-out refinance

A cash-out refinance loan replaces your current mortgage, plus you’ll get a lump sum of cash too. In return, your mortgage balance will be higher than you currently owe. It’s sort of like taking out a home equity loan and a mortgage refinance at the same time, wrapped together into one loan amount. If you’ve been meaning to refinance your mortgage anyway, this could be a good way to accomplish both objectives at once.

Home equity investment

A home equity investment is a financing option that allows you to receive a lump sum today in return for a percentage of your home’s future equity. There are no monthly payments to make in the meantime, and you’ll repay the funds in one single payment in 30 years' time when you decide to sell, refinance, or use another source of funds. Qualifying is generally easier than qualifying for a HELOC or a home equity loan.

Frequently asked questions

How much does a HELOC cost?

The closing costs on a HELOC typically range from 2% to 5% of your approved credit limit. Once open, your costs can vary a lot depending on whether you’re in the draw or repayment phase of your HELOC, how much of your credit line you’re currently using, and how the broader economic environment is driving your interest rate.

How much HELOC can I get?

The amount you can get from a HELOC typically depends on your home equity, credit score, income, and lender guidelines. Most lenders allow you to borrow up to 85% of your home’s value minus your remaining mortgage balance.

Can you take out a HELOC on an investment property?

Yes, although fewer lenders offer this option than for personal properties. Lenders typically charge higher rates and fees for HELOCs on investment properties as well.

Final thoughts

Your home allows you a lot of freedom and flexibility, and you can amplify that further by taking out a HELOC. Using the HELOC qualification calculator, you can determine whether you’re likely to qualify, and, if so, what your potential loan amount may look like. If you’re not eligible, however, or if you prefer having even more payment flexibility, consider whether a home equity investment may be right for you.