What Is the Most You Can Borrow With a Home Equity Loan?

Home equity loans and HELOCs use the equity you own in your home as collateral. Because these loans are secured against the equity value of your home, lenders are able to offer extremely competitive interest rates, usually close to those of first mortgages. And just as your bank or credit union would with first mortgages, it will underwrite the loan based on the value of your equity.

This imposes an upper limit on the amount you can borrow through a home equity loan. The maximum amount a lender will offer you is typically 80% to 85% of your combined loan-to-value (CLTV) ratio—a measure of the difference between the value of your house and how much you are borrowing. In this article, we’ll explain how this is calculated, highlight some other factors that can affect your maximum loan amount, and show you how to calculate your own maximum amount.

How Much Can You Borrow With a Home Equity Loan?

Home equity loans use your home as collateral. When you apply for this kind of loan, your lender will place a second lien on your home, giving them rights to your home along with the first mortgage lien if you fail to make payments. This makes home equity loans very low risk for lenders as long as they lend you less than the money you have invested in your home.

In practice, each lender has different guidelines to determine how much they can lend to you. Typically, the most important part of these guidelines is what CLTV ratio your bank can offer. This is the ratio of the loan amount to the equity you own in your home. Your equity is the value of your home minus any money you still owe on your first mortgage.

Here’s a simple example: Many lenders have a maximum CLTV ratio of 80%. If your home is worth $300,000, the maximum you could borrow would be 80% of this—$240,000. However, let’s say that you currently owe $150,000 on your first mortgage. You must subtract this from the total amount because the bank won’t lend you money you haven’t earned yet. And $240,000 minus $150,000 is $90,000. So this would be your maximum loan amount.

That’s not quite the end of the story, though. Just as your eligibility for a home equity loan would with a first mortgage, it may depend on your employment history, income, and credit score. These factors may also affect the interest rate you are offered on your loan because a lower credit score suggests you are at a higher risk of defaulting on the loan.

Other Considerations

Though the calculations above will allow you to work out the raw maximum amount of home equity loan you can access, there are some other costs and fees that you should take into account when calculating the effective maximum loan available to you.

For example, when you take out a home equity loan, you may have to pay many of the same closing costs associated with a first mortgage, such as loan processing fees, origination fees, appraisal fees, and recording fees. Unless you have a lot of cash on hand, these are likely to be paid for from the loan you take out and will therefore reduce the maximum you receive.

Similarly, lenders may require you to pay points—that is, prepaid interest—at closing time. Each point is equal to 1% of the loan value. So on a $100,000 loan, one point would cost you $1,000. This upfront interest may save you money in the long run, but over the short term, it will further reduce your maximum loan amount.

Finally, bear in mind that home equity loans may also have a minimum limit. Though some lenders will extend loans for $10,000, many won’t give you one for less than $35,000. This makes sense because the costs of originating the loan can be quite high in comparison to small loan amounts.

The Bottom Line

Home equity loans are secured against your home, so you can’t borrow more than the value of the equity you hold in your home. Your equity is the value of your home minus the amount you owe on your first mortgage. Lenders may be able to lend you up to 85% of this value.

In practice, your eligibility for a home equity loan will also depend on your credit score, income level, and other factors. These loans can also charge significant fees, which you may need to pay upfront, further reducing the effective maximum amount of your loan.