A home equity line of credit, or HELOC, enables you to use some of your home's value to secure credit and withdraw cash.
Home equity is the difference between your outstanding mortgage and your home's total worth. You can think of it as the amount of your house you own outright.
A HELOC is a long-term revolving line of credit you can put toward anything you want, including home renovations, college tuition or even medical bills.
While it has lower interest rates than a credit card or personal credit, there are risks — including losing your home if you default.
What is a HELOC?
A home equity line of credit is a form of revolving credit, like a credit card. Both have credit limits and require you to make monthly payments toward your balance.
However, a credit card is an unsecured debt. With a HELOC, you're using the equity in your home as collateral. If you can't repay the loan, your lender could take steps to force you into foreclosure.
How does a HELOC work?
When you open a HELOC, your lender will establish the maximum draw, or the percentage of your home's value you can access. That's often up to 85%, but is sometimes even more.
It will also set the draw period when you can take out funds. This initial phase can last up to 10 years, during which you typically only make payments on the interest. You don't have to use all the credit you're approved for but there is usually a minimum withdrawal requirement during the draw period.
After the draw period ends the repayment period begins. That's when you'll start making monthly payments on the remaining balance of your HELOC.
Each lender has different terms, so investigate which lender best fits your needs — here are some options to consider for your specific term requirements. Each of these banks was included on our best HELOC lenders list.
Best HELOC lenders
Not all lenders offer HELOCs, but we've selected several of the top choices.
Best for fast closing
CMG Financial
Annual Percentage Rate (APR)
Fixed and adjustable rates available. Apply for rates.
Types of loans
Conventional, FHA, VA, USDA, jumbo, HomeReady, Home Possible, renovation, HELOC, refinancing loans, reverse mortgage
Terms
15-year and 30-year fixed-rate loans; adjustable-rate loans with 5-year, 7-year, and 10-year introductory periods
Credit needed
620 for conventional loans
Minimum down payment
3% for conventional loans, 1% with the Community ONE Grant
Pros
- Buyers meeting income/location requirements can put as little as 1% down
- All In One Loan lets borrowers use checking account to offset mortgage balance
- HELOC with 30-year draw period available
- HomeFundIt™ lets borrowers crowdsource down payment donations
Cons
- Not transparent about rates and fees online
- Rates are higher than average
- No home equity loans
CMG Financial's five-day HELOC allows borrowers to access funds in less than a week, compared to as long as six weeks with other lenders.
Best for customer satisfaction
- Rated above average for customer satisfaction by J.D. Power, so you know help will be available if you need it.
- Offers a $7,000 closing-cost grant with no income limits in select areas, making it an ideal option for qualifying borrowers who don't have much beyond a down payment saved up.
- Offers all three types of government-insured mortgages
- Not transparent about rates and fees online
- No home equity loans or HELOCs
- Doesn’t service all of its loans
Fairway topped JD Power's mortgage origination satisfaction study in 2023 and has an A+ rating from the Better Business Bureau. Borrowers can complete their applications online and Fairway even offers remote notarization in most states.
Best for high limits
TD Bank Mortgage
Types of mortgages
Conventional, VA, FHA, jumbo, construction-to-permanent, physician loans, TD Right Step, TD Home Access, refinancing, home equity loans, HELOCs
Terms
Up to 30 years
Minimum credit score
620 for conventional, 500 for FHA
Minimum down payment
0% for VA loan, 3% for TD Right Step Mortgage®, TD Home Access Mortgage®, FNMA HomeReady®, 3.5% for FHA loan, 20% for jumbo
Availability
TD Bank offers home loans in 15 East Coast states and Washington, D.C.
Terms apply.
Pros
- Mortgages with 3% down and no PMI
- $10,000 lender credit
- Specialized mortgages for physicians
- Offers HELOC and home equity loans
Cons
- Higher-than-average rates
- Doesn't offer USDA loans
- Not available in all states
TD Bank has approved HELOCs for as much as $6 million, the highest limit of any lender we reviewed. Borrowers can tap as much as 89.99% of their home's value, more than most lenders offer. On the downside, TD only operates in 15 states — mainly on the East Coast.
HELOC requirements
Here's what lenders typically require from HELOC applicants.
- Amount of home equity: Most HELOC lenders require applicants to have 15% to 20% home equity to qualify.
- Minimum credit score: A score of 620 to 650 is usually required to secure a HELOC.
- Debt-to-income ratio: Your debt payments should equal no more than 43% of your gross monthly income.
Homeowners with more home equity, higher credit scores and lower debt-to-income ratios will get better rates and a higher draw maximum.
Home equity loan vs. HELOC
Both home equity loans and HELOCs tap into the equity you have in your home, but they have significant differences: A HELOC is a revolving line of credit while a home equity loan is paid out in one lump sum, with no draw period.
In addition, home equity loans typically have a fixed rate, so you know how much your payment will be each month. A HELOC loan, however, typically has a variable rate — making it harder to reliably anticipate what you'll have to pay over the life of the loan.
Few lenders offer both HELOCs and home equity loans.
HELOC pros and cons
Pros
- Access to more money than a credit card
- Lower interest rate than a card or personal loan
- If you use the HELOC on home repairs, the interest may be tax-deductible
Cons
- If you don't make your payments, you could lose your home.
- Closing costs and other fees can raise the cost of borrowing
- Variable rates mean you may wind up owing more than you can afford
FAQs
Is a HELOC a second mortgage?
A HELOC is a type of second mortgage, meaning that the lender has a secondary lien, or claim on your home if you default. The company you took out your original mortgage with has primary claim.
How much can I borrow with a HELOC?
Each lender sets its own loan limits: TD Bank has a $6 million maximum draw, for example, the largest of any lender we reviewed. Your individual line of credit will depend on various factors, including how much equity you have in your home, your credit score and your debt-to-income ratio.
How much equity do I need for a HELOC?
Typically, 15% to 20% home equity is required to be approved for a HELOC.
Is HELOC interest tax deductible?
The interest on a HELOC may be tax-deductible if you use the funds to "buy, build or substantially improve" a property, according to the IRS.
How long does it take to close on a HELOC?
How long it takes to close depends on your lender and the underwriting process. CMG Financial offers a HELOC that closes in five days — other lenders may take up to six weeks.
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