To qualify for a home equity loan (HELOAN) or home equity line of credit (HELOC), you’ll need to provide proof of income, meet minimum credit requirements, and have built up a minimum amount of equity in your home. No matter what home equity solution you’re considering, getting familiar with the requirements for a home equity loan can help you navigate the mortgage application process and improve your approval odds.

Keep reading to learn more about home equity loan requirements and what they mean for you.

Home Equity Loan and HELOC Requirements

Home equity loan and home equity line of credit requirements are essentially the same since they’re both secured by your home. Here’s what you need to know about qualifying:

1. Credit Score Requirements

Your credit score helps determine whether you qualify and what interest rate you’ll receive on a home equity loan.

  • Griffin Funding may approve borrowers with credit scores as low as 640
  • Investment property loans typically require a higher minimum score of 680
  • Higher credit scores generally qualify for lower interest rates and less interest paid over time
  • Improving your credit—even for a few months—can increase approval odds and lead to better rates

2. Home Equity Amount

The amount of equity you have available, or tappable equity, determines both eligibility and your home equity loan limits.

  • Most lenders require you to keep 10–20% equity in your home after borrowing
  • Example: On a $400,000 home, you must retain $40,000–$80,000 in equity
  • Rising home values have boosted available equity, with Americans holding over $34 trillion in home equity as of 2025
  • Online estimates, AVMs, or professional appraisals can help determine your current equity
  • Market conditions and home improvements can affect your home’s value

3. DTI Ratio

Your debt-to-income (DTI) ratio shows how much of your monthly income goes toward debt payments.

  • DTI can be as high as 50% to qualify
  • Includes all monthly debts plus the new home equity loan payment
  • Example: If you earn $8,000 per month, total debt payments must be $4,000 or less
  • Paying down existing debt or increasing income can help lower your DTI
  • Using home equity to pay off high-interest debt may improve DTI long term

4. Employment and Income

Lenders need to confirm you have reliable income to repay the loan.

  • Typically requires two years of consistent employment
  • Proof may include tax returns, W-2s, and recent pay stubs
  • Self-employed, business owners, and retirees may still qualify
  • Griffin Funding offers flexible options like no-doc home equity loans
  • Alternative income verification can help borrowers with non-traditional income

5. Property Appraisal

An appraisal determines your home’s value and how much equity you can access.

  • Used to calculate available equity and loan-to-value (LTV) ratio
  • Usually arranged by the lender during the application process
  • Appraisal fees are typically included in closing costs
  • Some loans may qualify for an AVM and Property Condition Report (PCR) instead of a full appraisal
  • Higher appraised values can increase borrowing potential
  • Minor repairs and documented home improvements can positively impact value

Brown and grey single-family homes in a suburban neighborhood.

Specialized HELOAN and HELOC Programs

In addition to traditional options, Griffin Funding offers specialized HELOAN and HELOC programs designed to meet different financial needs and borrower profiles, often with more flexible guidelines and requirements.

  • DSCR HELOAN: Designed for real estate investors, a DSCR HELOAN allows borrowers to tap into their equity and qualify for a second mortgage based on a property’s rental income rather than personal income. Approval focuses on whether the property can cover its own debt, making this option ideal for investors with strong cash-flowing properties.
  • Fixed-Rate HELOC: A fixed-rate HELOC combines the flexibility of a line of credit with the predictability of a fixed interest rate. Borrowers can lock in a rate on some or all of their balance, helping protect against rate fluctuations while still accessing funds as needed.
  • Reverse Second Mortgage: This option allows eligible homeowners aged 55 and older with significant equity to access that home equity without making monthly payments or touching their existing mortgage. The loan balance is repaid when the home is sold, refinanced, or no longer used as a primary residence.
  • Bank Statement Home Equity Loan or Line: Ideal for self-employed borrowers or those with non-traditional income, this program uses bank statements instead of tax returns or W-2s to verify income. It offers a flexible alternative for homeowners who may not meet traditional income documentation requirements but have strong cash flow.

Alternatives to Home Equity Loans

If you don’t meet the home equity loan requirements but still need access to cash, there are several alternatives worth considering:

  • Cash-out refinance: You might choose to refinance your mortgage with a cash-out option if you don’t qualify for a HELOAN or HELOC but still want to tap into your equity. A cash-out refinance loan replaces your current mortgage with a larger one, giving you the difference in cash. A cash-out refinance can be especially helpful if you can secure a lower interest rate than your current mortgage. 
  • Personal loans: While they typically come with higher interest rates, personal loans don’t require using your home as collateral. They might be a good option if you need a smaller amount or want to avoid putting your home at risk.
  • Reverse mortgage: These loans are only available for homeowners over the age of 62. Reverse mortgages provide access to home equity without monthly payments. However, this option comes with its own specific requirements and considerations.

See If You Meet the Requirements for a Home Equity Loan

A home equity or HELOC loan can be a smart way to fund major expenses while securing lower interest rates compared to personal loans or credit cards. Plus, the interest you pay may be tax-deductible when you use the money for home improvements.

Griffin Funding is here to help you understand the pros and cons of home equity loans and navigate the application process. Our experienced mortgage experts can walk you through the home equity loan or HELOC requirements and help you choose the best option for your needs. We also offer free tools such as the Griffin Gold app that make it easy to compare your mortgage options and manage your finances.

Ready to explore your options? Reach out today and connect with one of our mortgage professionals to find out how you can best leverage your tappable equity to achieve your financial goals.

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Frequently Asked Questions

How do HELOANs and HELOCs work?

A home equity loan works similarly to your first mortgage, providing a lump sum that is repaid in fixed monthly installments. The only difference is that while your first mortgage could only be used to purchase the house, you can use a home equity loan for anything. A HELOAN is a second mortgage with a fixed interest rate and predictable payments.

Conversely, when you get a home equity line of credit (HELOC), you get access to a line of credit that you can pull from as needed during a set period, typically 10 years. While still a second mortgage, it’s more flexible than a traditional home equity loan since you can borrow what you need and pay interest only on the amount you’ve used.

The primary differences between a HELOC vs. home equity loan come down to how you receive and repay the money. With a fixed-rate HELOC, you can get the stability of consistent payments, while a standard HELOC typically has a variable rate that can change over time.

Both home equity loans and HELOC loans allow you to use the funds for anything, including debt consolidation, school costs, home repairs, or anything else you can think of.

What disqualifies you from getting a home equity loan?

Not meeting any of the home equity loan requirements can disqualify you from getting a home equity loan. Common disqualifications include:
  • Insufficient equity
  • Low credit score
  • High DTI ratio
  • Unstable income
  • Recent bankruptcies, foreclosures, or late mortgage payments

Is it hard to get a home equity loan?

Getting approved for a home equity loan isn't necessarily difficult if you meet the basic requirements. Ultimately, the process will be the same as it was when you initially took out your home loan. You'll need to submit an application, provide documentation, and get your home appraised.

Working with an experienced home loan lender who can guide you through each step makes the whole process smoother. In addition to traditional home equity loans and HELOCs, we also offer self-employed home equity loans with alternative income verification methods.

How much can I borrow with a home equity loan?

The amount you can borrow depends on your home's value, existing mortgage balance, credit score, and income. Most lenders allow you to borrow up to 80-90% of your home's value minus your current mortgage balance.

For example, if your home is worth $800,000 and you owe $400,000 on your mortgage, you might be able to borrow $320,000 or more.

Can I get a home equity loan with bad credit?

Yes, it’s possible to meet HELOC loan requirements with below average credit, though options may be more limited. Some lenders approve borrowers with lower credit scores, especially if you have significant home equity, but you may face higher interest rates or stricter terms.

HELOC credit requirements are dependent on the lender. Reach out to your lender to see what their requirements are and if you qualify.

Do home equity loans have closing costs?

Yes, most home equity loans come with closing costs, which may cover appraisal fees, title costs, and lender fees. However, some lenders offer low- or no-closing-cost options, often in exchange for a slightly higher interest rate.

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 24 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 12 years in business.