How to Get a Home Equity Loan or HELOC
A home equity loan gives you one fixed sum of money. The rate is fixed too. A HELOC is a line of credit you can use again and again. Its rate can change. HELOC stands for home equity line of credit. Both loans use your house as security. If you do not pay, you can lose your house. So lenders limit how much you can borrow in total. The limit is about 80–85% of the value of your home. This total includes all your mortgages.
At a glance
- Cost:
- Closing costs 2–5% of the loan amount
- Total time:
- 3–6 weeks from application to funding
- Steps:
- 7 steps
- Where to apply:
- irs.gov, uscis.gov, travel.state.gov, or your state agency
Last reviewed October 2026 against official sources. Re-checked annually · next review due October 2027.
The Steps
Follow these in order
Each card shows the phase, expected time, and any cost. Data checked against official US sources(October 2026).
0 of 7 steps
- Before You Go 15 min
Calculate your equity
Your equity is the value of your home minus what you owe on your mortgage. For example, a $400,000 home with a $250,000 mortgage has $150,000 of equity in it. Lenders will not let you borrow all of it. Most lenders cap the total you can borrow at 80–85%, so this example allows about $90,000 of extra borrowing at 85%.
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- Before You Go 20 min
Pick the right product for your need
A home equity loan gives you one fixed sum. The rate is fixed. The payment is fixed. It is best for a cost you know in advance. Examples are a new roof or paying off debts in one loan. A HELOC is a line of credit you can draw from again and again. You draw from it during a ~10-year draw period. You may pay only interest in that time. Then you repay the loan over about 20 years. The rate can change. A HELOC is best for projects that go on over time. It is also best if you do not know the full cost. Do not borrow more than your project needs.
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- Before You Go 20 min
Check your credit and debt-to-income
Most lenders want a credit score of 620+ for a loan. You need 700+ for the best rates. They also want your debts to be low. Your debt-to-income ratio must be below 43% with the new payment included. Check your score for free first. Use your bank or a credit app. If your score is low, pay down your card balances first. Paying for 2–3 months can improve both numbers in a real way.
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- Go 1–2 hours
Shop 3–5 lenders, including a credit union
Start with the company that handles your mortgage now. They may cut fees for current customers. Then check prices at local credit unions. Credit unions often have the lowest rates. Many have HELOCs with no fees. Check one or two online lenders too. Compare the APR and the closing costs. Some lenders pay the closing costs for you. But they may ask for the money back if you close the loan early. For a HELOC, also compare the rate cap. Compare the margin over the prime rate too.
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- Fill / Prepare 2–3 weeks
Apply and complete the appraisal
Send in your application with your income papers. The lender will order an appraisal of your home. The appraisal can be a drive-by check or a full visit inside. It sets the value of your home. Your loan limit is based on that value. The lender then checks your income. It searches the title of the home. It checks your insurance too. This process is like a small mortgage.
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- Submit & Pay 3–5 days
Close — then wait out the 3-day rescission
You sign the papers at closing. If the home is your main home, the law gives you time to change your mind. Federal law gives you 3 business days to cancel the whole deal. You can cancel for any reason. This right is called the right of rescission. The lender pays the money only after this time ends. This right does not apply to investment homes.
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- Follow Up 15 min
Understand deductibility and the risk you took
Since 2018, you can claim a tax deduction for home equity interest in one case only. The money must buy your home. Or it must build your home. Or it must improve your home in a big way. You cannot claim it if you use the money to pay off credit cards. You cannot claim it if you use it to buy a car. Remember what secures this loan. It is your house. If you miss payments, the lender can sell your house to get its money back. Treat a HELOC as a second mortgage. It is not free money.
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FAQ
Frequently Asked Questions
What is the difference between a home equity loan and a HELOC?
A home equity loan is one fixed sum. You repay it at a fixed rate. The payment is the same each month. A HELOC is a line of credit. You draw money from it when you need it. You draw during a ~10-year draw period. The rate can change. It is based on the prime rate. After the draw period, you repay what you owe. A loan is best for a one-time cost you know. A HELOC is best for costs that come in stages. It is also best if you do not know the full cost.
How much can I borrow against my home?
In most cases, you can borrow up to 80–85% of the value of your home. You must take off what you still owe on your first mortgage. Take a $500,000 home with a $300,000 mortgage as an example. In this case, 85% of $500,000 is $425,000, minus $300,000 owed. That leaves about $125,000 for you to borrow. The lender must still approve your credit and income.
Can I get a home equity loan with bad credit?
It is harder with bad credit. Most lenders want a score of 620–640 at the least. If your credit is weak, you can borrow less. You will also pay a higher rate. Credit unions are the most flexible choice for most people. Watch out for lenders who say "no credit check" for equity loans. Scams that use your home equity target homeowners in a strong way. A real lender never asks you to pay before you get the loan. This is an FTC rule.
Is the interest tax-deductible?
You can claim it in one case only. The loan money must buy the home that secures the loan. Or it must build that home. Or it must improve that home in a big way. You must also list your deductions one by one. If you use the money to pay off debts, buy a car, or pay tuition, you lose the deduction. Talk to a tax preparer before you count on it.
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