Understanding HELOC Borrowing Power
Your HELOC borrowing power depends on three main factors: your home's current value, your existing mortgage balance, and your lender's maximum combined loan-to-value (CLTV) ratio.
How Lenders Calculate Maximum HELOC Amount
Formula: (Home Value × Max CLTV%) - Existing Mortgage = Maximum HELOC
Example:
Home Value: $500,000
Existing Mortgage: $300,000
Lender's Max CLTV: 85%
($500,000 × 0.85) - $300,000 = $125,000 maximum HELOC
Factors That Affect Borrowing Power
- Credit Score: Higher scores qualify for higher CLTV ratios (up to 90%)
- Income & DTI: Must prove ability to repay the maximum credit line
- Home Value: Recent appraisal determines your available equity
- Lender Policies: Some lenders cap HELOCs at specific dollar amounts
Typical CLTV Limits by Credit Score
- 760+ Credit Score: Up to 90% CLTV
- 700-759 Credit Score: Up to 85% CLTV
- 680-699 Credit Score: Up to 80% CLTV
- Below 680: May not qualify or limited to 75% CLTV
Should You Borrow the Maximum?
Just because you can borrow a certain amount doesn't mean you should. Consider:
- Only borrow what you actually need
- Leave equity cushion for market fluctuations
- Ensure you can afford payments if you use the full line
- Factor in potential interest rate increases
Expert Tips for Smart Borrowing
Boost Your Appraisal
Before the appraiser comes, list all recent upgrades (new AC, roof, floors) and have it ready on a piece of paper. It helps justify a higher value.
The 89% Limit
Some credit unions go up to 89% or 90% CLTV, but rates jump significantly. Stick to 80% for the best deal.
Don't Max Out
Just because you CAN borrow $100k doesn't mean you should. Keep a buffer for emergencies or market downturns.
Credit Score Impact
Going from 720 to 740 credit score might unlock an extra 5% LTV. Check your score and improve it before applying.