Looking to fund some home improvements? A home equity line of credit (HELOC) allows you to borrow against the equity you’ve built up from your mortgage payments. It offers a flexible line of credit similar to a credit card. This can be a good option to finance renovations, like a kitchen remodel or solar panel installation, that add to your home’s value. Generally, you’ll need at least 15% to 20% equity to qualify.
One of the appealing things about a HELOC is that it’s a second mortgage, so accessing cash won’t change the interest rate on your existing home loan — a real benefit in today’s higher mortgage rate environment. However, as with any debt, it’s crucial to have a solid plan to pay it back. HELOCs come with variable interest rates, meaning your monthly payments could change. And remember, your home acts as collateral for the loan, so you could risk foreclosure if you’re unable to repay the money borrowed.
Most banks, credit unions and home equity loan companies offer HELOCs. Shopping around and comparing multiple offers from different lenders can help you find a lower rate. To make the process easier, we did some digging, talked to experts and sifted through dozens of banks, online home equity lenders and credit unions to bring you CNET’s picks for the best HELOC lenders.
Best HELOC lenders of May 2025
| Lender | APR | Introductory APR | Loan amount | HELOC terms | Max LTV |
| U.S. Bank | 7.95% to 11.6% | N/A | $15,000 – $750,000 (up to $1 million for properties in California) | 10-year draw period, unspecified repayment period | 80% |
| TD Bank | 7.44% (0.25% TD checking account discount included) | N/A | From $25,000 | 10-year draw period, 20-year repayment period | 89.99% |
| Connexus Credit Union | From 8.17% | 5.99% until April 2026; 6.49% until Oct. 2026 | $5,000 – $200,000 | 15-year draw period, 15-year repayment period | Not specified |
| Spring EQ | Fill out an application for personalized rates | N/A | $50,000 – $500,000 | 10-year draw period, 20-year repayment period | 90% for home equity loans, not specified for HELOCs |
| KeyBank | From 8.2% (0.25% KeyBank client discount included) | N/A | From $10,000 | 15-year draw period, 15-year repayment period | 90% |
| Third Federal Savings & Loan | 6.99% | N/A | $10,000 – $200,000 | 10-year draw period, 30-year repayment period | 80% |
| PNC Bank | Fill out an application for personalized rates | N/A | $10,000 – $1 million | 10-year draw period, 30-year repayment period | 89.90% |
| Frost Bank | 8.15% to 18% (0.25% autopay discount included) | N/A | From $8,000 | 10-year draw period, 20-year repayment period | 80% |
| Regions Bank | 8.25% to 15.125% (Regions client discount included) | 4.99% for first 6 months | $10,000 – $500,000 | 10-year draw period, 20-year repayment period | 95% |
| Citizens | From 7.5% (0.25% autopay discount included) | N/A | From $5,000 | 10-year draw period, 15-year repayment period | 80% |
| BMO Harris | From 7.88% (0.5% autopay discount included) | 5.99% for first six months or 6.99% for first 12 months | From $10,000 | 10-year draw period, 20-year repayment period | 70% |
| Flagstar Bank | 8.49% to 21% (0.25% autopay discount included) | 6.75% for first six months | $10,000 – $1 million | 10-year draw period, 20-year repayment period | 89.99% |
| Truist | 7.5% to 15% | 5.99% for first nine months | From $10,000 | 10-year draw period, 20-year repayment period | 85% |
| Figure | From 7.05% | N/A | $15,000 – $400,000 | Five, 10, 15, or 30 years | 95% |
| PenFed Credit Union | From 7.375% | N/A | $25,000 – $1 million | 10-year draw period, 20-year repayment period | 90% |
Note: The above APRs are current as of May 6, 2025. Your APR will depend on factors such as your credit score, income, loan term and whether you enroll in autopay or other lender-specific requirements.
U.S. Bank
Good for nationwide availability
U.S. Bank offers both home equity loans and HELOCs in 47 states (not including Texas, South Carolina and Delaware). Interest-only HELOCs are available to qualified borrowers. You also have the option to lock all or part of your outstanding HELOC balance into a fixed-rate option during your draw period. Available loan amounts for HELOCs and home equity loans range from $15,000 to $750,000, and up to $1 million for properties in California.
Our take: We like U.S. Bank because of its extensive nationwide availability, many customer support options and price transparency — meaning you can get a personalized rate quote and fee information by filling out some basic information, no credit check required.
Read our full lender review here .
- Extensive nationwide availability — 47 states for both home equity loans and HELOCs
- Option to lock all or part of your outstanding HELOC balance into a fixed-rate option three times during your draw period
- Can apply online, over the phone, or in person at a branch
- Many customer support options
- $90 annual for HELOCs if you don’t have a U.S. Platinum Checking Package
- Early closure fee if you close your HELOC within 30 months of opening
- Not available in Texas, Delaware or South Carolina
- Preferred rates only available to people with a U.S. Bank checking account
- HELOC APR: 7.95% to 11.6%
- Loan amount: $15,000 – $750,000, up to $1 million for properties in California
- HELOC terms: 10-year draw period, unspecified repayment period
- Maximum LTV ratio: 80%
TD Bank
Good price transparency
TD Bank offers home equity loans and HELOCs in 15 states, with the option of an interest-only HELOC and a rate-lock HELOC. Loan amounts for HELOCs start at $25,000.
Our take: Although its nationwide availability is limited, TD Bank ranks high for its price transparency and wide variety of product offerings, including interest-only and rate-lock options on its HELOCs. The bank’s good online user experience, price transparency and customer service options stand out to us.
Read our full lender review here.
- 0.25% rate discount if you set up autopay from a TD personal checking account
- Wide range of product offerings
- Options to apply in person, on the phone or online
- No hard credit check to see personalized rates
- Only offered in 15 states: Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont and Virginia, plus the District of Columbia.
- $99 origination fee for both home equity loans and HELOCs
- Early termination fee — 2% of outstanding balance — if you close your HELOC within 24 months of opening
- $50 annual fee on HELOCs with line amount greater than $50,000
- HELOC APR: From 7.44% (0.25% TD checking account discount included)
- Loan amount: From $25,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 89.99%
Connexus Credit Union
Flexible credit union eligibility
Connexus Credit Union offers home equity loans and HELOCs in 46 states (excluding Alaska, Hawaii, Maryland and Texas). Loan amounts range from $5,000 to $200,000. This credit union also offers an interest-only HELOC. Because Connexus is a credit union, its products and services are only available to its members. You can see the full membership eligibility requirements here .
Our take: Connexus offers expansive nationwide availability and a few different product options, part of the reason this lender ranked highly for us. Its straightforward application process and relatively easy membership requirements is another bonus.
Read our full lender review here .
- No annual fee
- Available in 46 states
- Membership requirements for the credit union are relatively easy to meet
- Potential for high closing costs
- Won’t be able to see a personalized rate without a credit check
- Not available in Alaska, Hawaii, Maryland and Texas
- HELOC APR: From 8.17%%
- Introductory APR: 5.99% until April 1, 2026; 6.49% until Oct. 1, 2026
- Loan amount: $5,000 to $20,000
- HELOC terms: 15-year draw period, 15-year repayment period
- Maximum LTV ratio: Not specified
Spring EQ
Good online application user experience
Spring EQ operates in 41 states and offers home equity loans, HELOCs and interest-only HELOCs. Home equity loan amounts range from $5,000 to $500,000, while HELOC line amounts range from $50,000 to $500,000. You must have a minimum credit score of 680 and a debt-to-income ratio of 45% or less.
Our take: We like that borrowers can get prequalified for a Spring EQ loan with only basic information. This makes it easy to compare rates without providing sensitive information or undergoing a hard credit check. Additionally, the online application experience is user-friendly with an easily digestible breakdown of rates, fees and terms.
Read our full lender review here.
- No credit check required to see personalized rates
- Available in 38 states
- Transparent and easy to understand application process
- High origination fee of $995
- Minimum credit score of 680 is required (minimum credit score of 700 is required for preferred rates)
- Potential for a $99 annual fee
- Does not offer loans in Alaska, Hawaii, Idaho, Missouri, New York, North Dakota, South Dakota, West Virginia or Wyoming
- HELOC APR: Fill out application for personalized rates
- Loan amount: $50,000 to $500,000
- HELOC terms: Not specified
- Maximum LTV ratio: 90% for home equity loans, not specified for HELOCs
KeyBank
Wide range of product offerings
KeyBank offers home equity loans in 15 states and HELOCs in 44 states. Aside from a standard HELOC, KeyBank also offers interest-only and rate-lock options. HELOCs have loan amounts of $10,000 and up.
Our take: KeyBank’s extensive product offerings stand out to us. The lender’s streamlined application process for existing users is also useful. Both existing and new users will appreciate the online user experience and availability of customer service options from KeyBank.
Read our full lender review here .
- Wide range of product offerings
- Streamlined application process — particularly for existing KeyBank account holders
- 0.25% discount for clients with eligible checking AND savings accounts with KeyBank
- $50 annual fee
- $400 closing fee is closing is performed by a closing agent
- HELOC APR: From 8.2% (0.25% KeyBank client discount included)
- Loan amount: From $10,000
- HELOC terms: 15-year draw period, 15-year repayment period
- Maximum LTV ratio: 90%
Third Federal
Good option for rate-match guarantee
Third Federal Savings & Loan offers HELOCs in 26 states and home equity loans in only eight states. HELOCs are available in amounts from $10,000 to $200,000. A HELOC from Third Federal comes with a 10-year draw period and 30-year repayment period.
Our take: We like Third Federal’s application process and the lender’s price transparency. The lender’s website also features a helpful comparison tool if you’re unsure of what kind of home equity product you’re looking for. Third Federal’s rate match guarantee stands out to us, particularly in a rising rate environment.
Read our full lender review here .
- No application, closing or origination fee
- Rate match guarantee, up to $1,000
- Long repayment period — 30 years
- $65 annual fee (waived the first year)
- HELOCs are only available in 26 states
- HELOC APR: 6.99%
- Loan amount: $10,000 to $200,000
- HELOC terms: 10-year draw period, 30-year repayment period
- Maximum LTV ratio: 80%
PNC Bank
Good option for fixed-rate HELOCs
PNC Bank operates in 44 states. PNC doesn’t offer home equity loans, but it does offer both variable-rate and fixed-rate HELOCs. PNC has large loan limits of up to $1 million, which provides flexibility if you need continued access to large amounts of cash for a major life expense such as home renovations or college tuition.
Our take: We like PNC Bank because of its range of product offerings and straightforward application. The bank is also transparent about its rates, fees and terms without requiring a credit check. Although PNC doesn’t offer home equity loans, it has good nationwide availability for HELOCs.
Read our full lender review here .
- 0.25% autopay discount available
- Offers both variable and fixed-rate HELOCs
- Available in 44 states
- Long repayment period — 30 years
- Doesn’t offer home equity loans
- $100 fee every time you lock your rate
- $50 annual fee for HELOCs (except in Texas)
- Not available in Alaska, Hawaii, Louisiana, Mississippi, Nevada and South Dakota
- HELOC APR: Fill out application for personalized rates
- Loan amount: $10,000 to $1 million
- HELOC terms: 10-year draw period, 30-year repayment period
- Maximum LTV ratio: 89.9%
Frost Bank
Good option for Texas borrowers
Frost Bank, headquartered in San Antonio, Texas, offers products only to Texas residents. It offers home equity loans, HELOCs and interest-only HELOCs. Home equity loans are available with loan amounts of $2,000 and up, while HELOCs are available with line amounts of $8,000 and up.
Our take: Although Frost Bank’s nationwide availability is very limited, the bank has a helpful product selection tool, easy application process and good price transparency, making it a strong option for Texas borrowers.
Read our full lender review here .
- No application, annual or closing fees
- 0.25% autopay discount with a Frost checking or savings account
- Quick application process
- Only available in Texas
- Have to create an account to apply
- HELOC APR: 8.15% to 18% (0.25% autopay discount included)
- Loan amount: From $8,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 80%
Regions Bank
Good for autopay discounts
Regions Bank serves people across the South, Midwest and Texas, offering home equity loans and HELOCs in 15 states. HELOC offerings include a rate-lock option for those who want it. Home equity loans have amounts of $10,000 to $250,000 and HELOCs have line amounts ranging from $10,000 to $500,000.
Our take: Regions only offers its products in 15 states, it gives people in these states the flexibility to choose between home equity loans, HELOCs and rate-lock HELOCs. We also like the different application and customer service options Regions offers.
Read our full lender review here .
- 0.25% or 0.5% autopay discounts available
- High maximum LTV ratio — 95%
- Regions will pay closing costs if your line amount is $250,000 or less
- Closing costs between $150 and $4,000 if your loan amount is greater than $250,000
- Only available in 15 states (Alabama, Arkansas, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Missouri, North Carolina, South Carolina, Tennessee and Texas)
- HELOC APR: 8.25% to 15.125% (autopay discount included)
- Introductory APR: 4.99% for first six billing cycles
- Loan amount: $10,000 to $500,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 95%
Citizens
Good option for low loan amounts
Citizens offers standard and interest-only HELOCs to borrowers in 19 states. The bank doesn’t offer home equity loans. Line amounts for HELOCs start from $5,000, which is lower than what many other lenders offer.
Our take: Because Citizens’ nationwide availability is limited, we ranked it highly for its price transparency, responsive customer service and range of HELOC options.
Read our full lender review here .
- 0.25% autopay discount
- No application fee or closing costs
- Low minimum loan amount — $5,000
- Does not offer home equity loans
- Only available in 29 states: Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Vermont and Virginia, plus the District of Columbia.
- $50 annual fee after the first year of your draw period
- HELOC APR: From 7.5% (0.25% autopay discount included)
- Loan amount: From $5,000
- HELOC terms: 10-year draw period, 15-year repayment period
- Maximum LTV ratio: 80%
BMO Harris Bank
Good for introductory APR
BMO Harris (a subsidiary of the Canadian financial services company Bank of Montreal) offers products and services in 48 states (all but New York and Texas). The bank offers standard and interest-only HELOCs and the option to lock in your balance at a fixed rate. It also offers home equity loans. HELOC line amounts start from $10,000.
Our take: We like that BMO Harris offers both home equity loans and three types of HELOCs almost nationwide. We found its online application less straightforward than its competitors.
Read our full lender review here .
- 0.5% autopay rate discount
- Personalized rates available without a hard credit check
- Introductory APRs available for first six months or first 12 months
- Application requires your social security number
- Minimum credit score 650 to 680
- Not available in New York or Texas
- HELOC APR: From 7.88% (0.5% autopay discount included)
- Introductory APR: 5.99% for first six months or 6.99% for 12 months
- Loan amount: From $10,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 70%
Flagstar Bank
Good customer support
Flagstar Bank offers home equity loans and HELOCs in 49 states (all but Texas) — but check your specific ZIP code for availability. Available loan amounts for home equity loans and HELOCs range from $10,000 to $1 million.
Our take: We like the lender’s range of customer service options, including 24-hour loan support via phone, which may appeal to those who enjoy accessible communication with customer service. Flagstar’s nationwide availability also stood out to us. Its tedious application process and lack of price transparency may be a drawback for people seeking a quick, easy process.
Read our full lender review here .
- 0.25% autopay discount
- 24-hour loan support over the phone
- Strong nationwide availability
- Doesn’t have a full online application
- Personalized rates require a soft credit check
- HELOC APR: 8.49% to 21% (0.25% autopay discount included)
- Introductory APR: 6.75% for first six months
- Loan amount: $10,000 to $1 million
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 89.99%
Truist
A good fast funding option
Truist offers standard, interest-only and rate-lock HELOCs to borrowers in 15 states, primarily in the Southeast. Truist doesn’t offer home equity loans. HELOC line amounts start at $10,000 on up.
Our take: Truist’s fast funding stands out to us. Truist falls short on price transparency. You’ll have to submit an application and undergo a credit check to get personalized rates.
Read our full lender review here .
- You can receive your funds within 30 to 35 days
- Streamlined application process for existing Truist users
- Maximum LTV ratio of 85%
- Only available in 18 states (Alabama, Arkansas, California, Florida, Georgia, Indiana, Kentucky, Maryland, Mississippi, North Carolina, New Jersey, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia and West Virginia, plus the District of Columbia)
- Doesn’t offer home equity loans
- $50 annual fee in some states
- Credit check required to see personalized rates
- HELOC APR: 7.5% to 15%
- Introductory APR: 5.99% for first nine months
- Loan amount: From $10,000
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 85%
Figure
Lump-sum HELOC offering
Figure uses a unique combination of technology and banking to provide people in 44 states with HELOCs. Although officially called a HELOC, Figure’s HELOC has characteristics of both a traditional HELOC and a home equity loan. Borrowers will withdraw the full line amount (minus the origination fee) at the time of origination. Once they repay the initial balance at a fixed rate, they will be able to make additional draws over a specified period. Available line amounts range from $15,000 to $400,000.
Our take: Figure’s main draws are its fast funding and easy-to-navigate website with an accompanying chatbot. Figure only offers a single product, which might not be right for everyone.
Read our full lender review here .
- Unique lump-sum HELOC offering
- Rate discount of up to 0.75%; 0.5% for opting into a credit union membership and 0.25% for enrolling in autopay
- Receive funds in as little as five days
- Quick and easy to navigate online application
- Only offers one product
- Origination fee of up to 4.99% of initial draw
- Not available in Delaware, Kentucky, Maryland, New York, Texas or West Virginia
- Minimum credit score of 620 (720 in Oklahoma)
- HELOC APR: From 7.05%
- Loan amount: $15,000 to $400,000
- HELOC terms: Five, 10, 15 or 30 years
- Maximum LTV ratio: 95%
PenFed Credit Union
Good option for borrowers outside the continental US
The Pentagon Federal Credit Union (widely known as PenFed ) offers HELOCs in all 50 states, as well as Guam, Puerto Rico and Okinawa. PenFed is a credit union so its products are only available to members, but you can easily become a member by opening a PenFed savings account and funding it with at least $5. With PenFed, you can choose between a standard, interest-only or rate-lock HELOC with line amounts running from $25,000 to $1 million. PenFed doesn’t offer home equity loans.
Our take: PenFed may be a good option for borrowers in US territories who don’t have many other alternatives when it comes to home equity lenders. Membership eligibility for the credit union is also relatively easy to meet. PenFed’s application process is more tedious than that of other lenders, requiring applicants to request a callback from the credit union.
Read our full lender review here .
- Available in all 50 states, as well as Guam, Puerto Rico and Okinawa
- Wide range of HELOC offerings
- Membership requirements for the credit union are relatively easy to meet
- No online application process
- Closing costs for credit lines greater than $500,000
- Doesn’t offer home equity loans
- HELOC APR: From 7.375%
- Loan amount: $25,000 to $1 million
- HELOC terms: 10-year draw period, 20-year repayment period
- Maximum LTV ratio: 90%
How does a HELOC work?
A HELOC offers you a revolving line of credit, meaning you don’t receive all your funds at once. Most lenders allow you to borrow up to 80% of your home equity.
Your loan will be split up into two periods: the draw period and the repayment period. During the draw period, you can take out money as many times as you need, as long as it’s below your total loan amount. You must make minimum monthly payments, typically just for the interest that accrues during the draw period.
Once the draw period ends, you enter the repayment period, which usually lasts between 10 and 20 years. At this point, you can no longer take any money out of your HELOC. Your monthly payments will increase during the repayment period because you must start paying back the principal (the amount you withdrew) in addition to the interest accrued.
How to find the best HELOC lender
As with any major financing decision, it’s important to do your due diligence before committing to a loan. This is especially important for secured loans like HELOCs.
According to research from Freddie Mac, getting just one additional rate quote could save homeowners an average of $1,500 over the lifetime of their loan. If you get five additional rate quotes, you can save an average of as much as $3,000, the Freddie Mac survey revealed.
Here’s what experts recommend you keep in mind when choosing a home equity lender:
✅ APR: Be sure to pay attention to a lender’s annual percentage rate, as opposed to just the interest rate. The APR will give you a clear picture of the true rate you’re paying, as it factors in additional fees, like closing costs. One lender may offer a significantly lower interest rate than another but charge hefty fees, resulting in a higher total cost of borrowing.
✅ Requirements: Each lender will have its own set of qualifying requirements, like a minimum credit score or maximum debt-to-income ratio. It’s important to know whether or not you’ll actually qualify with a specific lender before moving forward in the process.
✅ Loan options: Just like a mortgage, there are different types of HELOCs. You may want a shorter (or longer) repayment term. Or you may want the option to lock in a fixed rate on a portion of your loan balance. Some lenders offer just a standard HELOC, others provide fixed-rate HELOCs and/or interest-only HELOCs.
✅ Availability: Even large national banks may not offer HELOCs in every state. In some instances, a smaller, more local lender could be a better fit for your needs.
✅ Customer satisfaction: Depending on the length of your loan term, you could end up working with your lender for up to thirty years. Being able to get your questions answered promptly and clearly can go a long way. Consider a lender’s customer reviews as well as what customer service options they provide.
✅ Flexibility: Down the line, you may decide you want to pay off your line of credit early, convert a portion of your HELOC to a fixed rate or refinance it entirely. Some lenders are more flexible than others in that department. Check to see what options they provide and if you’ll incur any prepayment penalties (which is common practice among lenders).
Remember: There is no single best HELOC lender. Some will offer lower interest rates or fees, while others are known for providing exceptional customer service. The best HELOC lender will ultimately depend on your financial situation and goals. Researching and comparing multiple lenders is the best way to find a good match.
How to apply for a HELOC
Applying for a HELOC is similar to applying for a mortgage. Before you do anything, make sure you have a grip on your financial situation. It’s important to have a plan for how you’ll use the funds from your HELOC and how you’ll pay it back. You’ll want to get an idea of your credit score and current loan-to-value ratio, as those factors can influence whether you qualify for a HELOC and what rates you could get.
- Research lenders and compare rates. First, narrow your search down to a list of lenders who meet your needs in aspects other than rates — whether that means they have good customer service, in-person branches near you, or simply offer the product you’re interested in. Then, compare quotes from the lenders who meet your basic criteria to find the best rate.
- Have at least 15% to 20% equity in your home. Almost all lenders will require you to have at least 15% to 20% equity in your home before considering you for a home equity loan. If you do, lenders will then take into account your credit score, income and current DTI to determine whether you qualify as well as your interest rate. Some lenders may also require an appraisal of the home you’re using as collateral to assess its value.
- Be prepared to have financial documents at the ready, such as pay stubs and Form W-2s. Proof of ownership and the appraised value of your home will also be necessary. The lender may also pull your credit score from the credit bureaus as part of your application, which could temporarily lower your credit score by a few points.
- Close on your loan. Once you submit your application, the final step is closing on your loan. This typically takes a few weeks to a month. In some states, you’ll have to do this in person at a physical branch. After you close on your HELOC, your line of credit will be open and you can begin withdrawing funds.
HELOC requirements
Although it varies by lender, to qualify for a HELOC you’re typically required to meet the following criteria:
- At least 15% to 20% equity in your home: Home equity is the amount of home you own. Subtract what you owe on your mortgage and other loans from the current appraised value of your house to get that number.
- Minimum credit score of 620: In general, maintaining a high credit score is essential to maintaining your overall financial health. Lenders use your credit score to determine the likelihood that you’ll repay the loan on time. Most lenders prefer to see a credit score of at least 700, but it’s possible to be approved with a lower score depending on your financial situation. A lower credit score is likely to result in a higher interest rate for your HELOC.
- A debt-to-income ratio of 43% or less: Divide your total monthly debts by your gross monthly income to get your DTI. Like your credit score, your DTI helps lenders determine your capacity to make consistent payments toward your loan. You can be denied a HELOC if you have too much debt. Some lenders may prefer a DTI of 36% or less. If you have a high DTI, be prepared to be approved for a smaller loan or to be turned down outright.
- Adequate, verifiable income: Proof of income is a standard requirement to qualify for a HELOC. Have your tax returns, Form W-2s and pay stubs handy to show you have a consistent source of monthly income, and enough of it, to comfortably pay the HELOC in addition to your current mortgage. Check your lender’s website to see what forms and paperwork you will need to submit along with your application.
Alternatives to HELOCs
Unlike a HELOC, a home equity loan isn’t a revolving line of credit, but a fixed-rate installment loan. You can borrow money in a lump sum upfront and then pay it off in fixed monthly installments over the loan term. There is one key similarity: both home equity loans and HELOCs are secured loans that use your house as collateral.
If you prefer to receive all the funds from your loan upfront, a home equity loan is likely a better option than a HELOC. In addition, the certainty of a fixed interest rate may be an important factor — particularly in a rising rate environment.
A personal loan can get you quick cash without needing to put your house up as collateral. They’re fixed-rate installment loans where you receive a lump sum of cash upfront and pay it back over the agreed-upon term, commonly ranging from two to seven years.
Because personal loans are unsecured debt, they tend to have higher interest rates than HELOCs or home equity loans. Most personal loans require good credit for approval, but bad-credit personal loan lenders do exist. If you have poor or fair credit, be prepared to pay a higher interest rate.
In contrast to a HELOC, a cash-out refinance is when you sign up to replace your existing mortgage with a new bigger one. You then get the difference in cash, meaning you’re quite literally cashing out the equity you’ve built up in your home.
Cash-out refinances are ideal if you can get a lower rate on your new mortgage, but that likely won’t be possible if you bought before the mortgage rate surge of 2022. For those who don’t want to give up their low-rate mortgage, a HELOC could be the better option to tap into their home equity.
The bottom line
A HELOC can be a cost-effective way to access a line of credit by borrowing against the equity you’ve built in your home. Being financially healthy by keeping your debt low and credit score high, as well as interviewing multiple lenders will not only help make you an attractive candidate for loan approval, but will help you secure the best rate and terms on a HELOC.
FAQs
A HELOC allows you to access your home’s equity without changing your primary mortgage’s interest rate. When you borrow with a HELOC, you use the difference between your home’s value and what you owe on your mortgage as collateral. Because a HELOC is a secured loan, you can often get a more competitive rate than with a personal loan or credit card. If you default on your payments for HELOC or home equity loan, you risk losing your home.
A HELOC can be useful if you have big expenses coming up that you need cash to pay. Right now, HELOC rates are comparatively lower than other forms of financing, including personal loans and credit cards. A HELOC’s flexibility is ideal if you are unsure of how much money you will need and if you don’t need all of that money upfront. You can use the funds for almost anything but if you are unsure you’ll be able to comfortably pay the loan back, a HELOC is likely not worth the risk of losing your home.
A HELOC can be useful for large expenses, such as home renovations or paying for your child’s college tuition. It’s particularly good for ongoing expenses where you don’t know the exact sum of money you’ll need. Some of the most common uses for a HELOC include home improvements, college expenses, medical bills or debt consolidation.
Avoid treating your HELOC like a credit card. Using your line of credit to fund one-time expenses, like a vacation, isn’t ideal. Explore other types of financing — that aren’t secured by your home — for such expenses.
There are several factors you should consider when searching for a HELOC, to ensure you get the best rate :
- Your credit score and history: Lenders will pull your credit score to determine your creditworthiness, just as they would for any other type of credit application. Having good credit, or improving your credit before you apply, can increase your chances of getting a more favorable rate.
- Your home equity: The more equity you have, the more it will positively affect your loan-to-value ratio. LTV is a metric used to measure the relationship between how much you owe on your mortgage and the market value of your home. The more equity you have, the lower your LTV will be and the better you’ll look to lenders.
- The lender: Different lenders offer different rates. Make sure to shop around and consider all of the options for HELOC rates, and don’t discount local credit unions or banks.
Both HELOCs and home equity loans allow you to borrow money against your property’s equity. They differ in how the funds are distributed and at what interest rate you pay the loan back.
A HELOC is a flexible lending option, meaning you can withdraw funds as needed. There’s a limit to how much you can take out at once, but you’ll only pay interest on what you’ve borrowed. Keep in mind that interest rates for HELOCs are almost always variable, meaning your monthly payment can fluctuate.
Home equity loans, on the other hand, provide you with a one-time lump sum of cash. You pay it back over a set period of time at a fixed interest rate instead of a variable interest rate.
Methodology
We evaluated a range of lenders based on factors such as interest rates, APRs and fees, how long the draw and repayment periods are, and what types and variety of loans are offered. We also took into account factors that impact the user experience such as how easy it is to apply for a loan online and whether physical lender locations exist.
Learn more about how we rate home equity lenders here.
