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Requirements for a Home Equity Loan or HELOC

Learn more about what you need to take out a Home Equity Loan or HELOC.

If you are looking for ways to tap into your home’s equity and borrow low-interest money, you’ve probably come across information about taking out a home equity loan or accessing a home equity line of credit (HELOC).

Depending on your situation, though, you may or may not meet the requirements for a HELOC or a Home Equity Loan. We’ve laid out the basics so you can understand what is required to tap into your home’s value with these two tools.

Home Equity Loan vs. HELOC

Home Equity Loans and HELOCs are two options that allow you to leverage your home’s equity to borrow money, but they have their differences. A home equity loan is disbursed as a lump sum. This means that the money is issued once, after which you pay it back over the agreed-upon term of the loan.

A home equity line of credit (HELOC) is a line of credit, similar in some ways to a credit card. Essentially, it’s a revolving credit line. With a HELOC, you can borrow money that you then pay back, at which point you can borrow more money.

One of the key perks of both of these is that the interest in Home Equity Loans and HELOCs is tax-deductible if you use it to renovate or substantially improve your home.

Getting Approved for a Home Equity Loan or a HELOC

When a lender evaluates your eligibility to borrow against your equity, they will look at several aspects of your finances to make their decision. In general, you’ll need the following to qualify for a HELOC or home equity loan:

A Debt-to-Income Ratio of Less Than 43%

Your debt-to-income ratio (DTI) is the ratio of how much you owe in debt in total each month, divided by your monthly income and converted to a percent. The higher your DTI, the more debt you have.

To determine if you are eligible for a HELOC or home equity loan, lenders will evaluate your DTI. The federal limit for borrowing against your equity is 43%. In some cases, this can be slightly higher for HELOCs.

A Good to Excellent Credit Score

Your credit score is an essential determinant of your trustworthiness as a borrower. A good FICO credit score — in other words, one approximately 670 and above — is likely sufficient as long as you meet all of the other requirements.

If you have a very good credit score (740–799) or an exceptional credit score (800 and above), it indicates to lenders that you are very likely to be responsible with borrowed money and will likely pay it back on time.

A Strong Repayment History

A HELOC or home equity loan leverages your home as collateral to borrow money. This means that if you fail to pay your loan, you will be at risk of losing your home. Thus, lenders will want to be sure that you have a strong history of paying your bills on time before they approve you to take on more debt.

At Least 15–20% Current Equity in Your Home

To borrow against equity, you first have to have equity. Generally, you’ll need to have 15–20% of your home’s value already paid off before you are eligible to use it as leverage to borrow more money. To know your home’s value, you’ll need to have it appraised.

The amount of equity you have in your home informs your loan-to-value ratio, which some lenders will also use to evaluate whether to approve you for a home equity loan or HELOC. A loan-to-value ratio (LTV) is a ratio of the amount of money you owe on your home versus its appraised value.

How Much You Can Borrow with a Home Equity Loan or a HELOC

How much you can borrow is limited by the equity that you have in your home and your home’s current loan-to-value ratio.

In general, you can usually borrow up to 80–85% of your combined loan-to-value ratio. The combined loan-to-value ratio (CLTV) is similar to an LTV but includes both any new loans you take out and your existing mortgage.

For example, if you currently owe $250,000 on a $500,000 home, your current loan-to-value ratio is 50%.

When you add in the new money you take out via a HELOC or home equity loan, this ratio cannot exceed 80–85%. In this case, you could borrow an additional $150,000–$175,000, depending on the lender.

Shopping for a Home Equity Loan or HELOC

When you are shopping for a HELOC, you’ll want to make sure you’re getting the best deal. Just like shopping for your original mortgage, it can pay to shop around and check out various lenders.

Because credit unions are not-for-profit and owned by their members, they generally offer the most competitive rates.To find out what Listerhill Credit Union’s current rates are for HELOCs and Home Equity Loans, click on the following link.

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Frequently Asked Questions

  • How does a cash back credit card work?

    Our cash back credit card gives you a flat rate of 2% back on all of your purchases. It acts as a rebate that you can redeem for cash as a statement credit or direct deposit in your account.

  • How do I receive an incoming wire transfer at Listerhill?

    All incoming wires must be received using Listerhill's routing number of 262277011. The member should use the routing number along with their member number and share ID suffix or their draft number when receiving a wire.

    Wire to:

    Listerhill Credit Union

    4790 E. 2nd Street

    Muscle Shoals, AL 35661

    1-256-383-9204

    ABA No.: 262277011

    For credit to the account of:

    Member's Name:

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  • What does it cost to send or receive a wire transfer?

    Incoming Domestic Wire Charge: $20.00

    Outgoing Domestic Wire Charge: $20.00

    Incoming Foreign Wire Charge: $35.00

    We do not process outgoing foreign international wires. We can receive them only.

  • Can I conduct a wire transfer through Listerhill?

    Listerhill is capable of receiving incoming wire transfers and sending outgoing domestic wire transfers. All Branch Managers, Loan Officers, Senior Member Advocates, Member Advocates, and Tellers can provide our members with information needed to receive incoming wire transfers.

    Branch Managers, Member Advocates, and Senior Member Advocates can assist with processing outgoing domestic wires.

    We do not process outgoing foreign international wires. We can receive them only.

  • How do I qualify for membership at Listerhill?

    To qualify for membership with Listerhill, you must meet one of the following requirements:

    • If you live in the states of Alabama, Georgia, Mississippi, Florida, or Tennessee, you are eligible to become a member.
      • Depending on your individual eligibility requirements, we may require membership into an approved association at no cost to you.
    • You can also qualify for membership by being a family member of a current or potential Listerhill member.