HELOC
A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home's equity. You draw funds as needed during the draw period and repay flexibly — like a credit card backed by your house.
At a glance
| Minimum down payment | N/A — based on existing equity (typically need 15%–20% remaining equity after the line) |
|---|---|
| Minimum credit score | 680 typical; some lenders accept 660 |
| Maximum loan amount | Up to 85%–90% combined loan-to-value (CLTV) of home value |
| Mortgage insurance | None |
Best for
- Homeowners funding renovations in phases
- Self-employed borrowers smoothing out cash flow
- Investors using equity to fund a down payment on a new property
- Borrowers who want access to funds but don't need a lump sum today
- Short-term debt consolidation with a payoff plan
Eligibility requirements
- At least 15%–20% equity in your home after the new line
- Credit score of 680+
- DTI typically under 43%
- Documented income (similar to a refinance)
- Property appraisal or AVM
Pros
- Pay interest only on what you actually draw
- Funds available for 5–10 years (the draw period)
- Doesn't replace your existing mortgage — you keep your low first-lien rate
- Can be repaid and re-borrowed during the draw period
- Closing costs are typically lower than a cash-out refinance
Cons
- Variable interest rate tied to the prime rate — payments can rise
- After the draw period ends, monthly payments jump to principal + interest
- Your home is collateral — default risks foreclosure
- Lender can freeze the line if home values drop
Documents you'll need
- Two most recent pay stubs
- Two years of W-2s and tax returns
- Most recent mortgage statement
- Current homeowners insurance declaration page
- Property tax bill
When a HELOC beats a cash-out refinance
If your current mortgage has a low rate (say, you locked at 3% in 2020), do not refinance to access equity. A HELOC lets you tap your equity without losing that historically low first-lien rate.
The trade-off is the variable rate on the HELOC. As long as you have a payoff plan within a few years — or you’re using the funds for a high-return purpose like a down payment on an income property — a HELOC almost always wins the math.
Frequently asked questions
- HELOC vs. home equity loan — what's the difference?
- A HELOC is a revolving credit line with a variable rate; a home equity loan is a one-time lump sum with a fixed rate and fixed payment. Choose HELOC for flexibility, home equity loan for predictability.
- How long is the HELOC draw period?
- Typically 5–10 years. During this time you can draw funds and pay interest only. After the draw period, you enter a repayment period (usually 10–20 years) where you pay principal and interest on the outstanding balance.
- Can I get a HELOC if I still have a primary mortgage?
- Yes — that's the most common scenario. The HELOC sits as a second lien behind your primary mortgage. You're approved based on your combined loan-to-value ratio.
- Are HELOC interest rates fixed or variable?
- Most HELOCs have variable rates tied to the prime rate plus a margin. Some lenders offer fixed-rate conversion options where you can lock in a portion of your balance at a fixed rate.
Related loan programs
- Refinance Loans — Refinancing replaces your current mortgage with a new one — to lower your rate, shorten your term, switch loan types, or pull cash out of your equity. The right refinance depends on your goal, not just current rates.
- Conventional Loans — Conventional loans aren't backed by a government agency, follow Fannie Mae and Freddie Mac guidelines, and reward strong credit with the lowest rates and most flexible terms available.
- DSCR Loans — DSCR (Debt Service Coverage Ratio) loans qualify real estate investors based on the rental income of the property — not personal income or tax returns. They're the go-to program for scaling a rental portfolio.