HELOC eligibility: Qualifications & requirements

The article is for educational purposes only. JPMorgan Chase Bank, N.A., currently offers home equity lines of credit (HELOCs) in select states and does not offer home equity loans in any state. Please talk with a Home Lending Advisor to see if HELOCs are available in your area. Any information described in this article may vary by lender.

Quick insights

• Qualifying for a home equity line of credit (HELOC) may require a high credit score, consistent income, sufficient home equity and a low debt-to-income ratio (criteria may vary by vendor).
• Requirements for obtaining a HELOC include providing proof of income and employment, getting a home appraisal and considering the loan-to-value ratio.
• If you determine that a HELOC is not the best option, alternatives such as home equity loans, personal loans, cash-out refinancing and credit cards can be considered.

Whether you’re looking to renovate your home, consolidate debt or cover unexpected expenses, exploring ways to access the equity in your home can open doors to a variety of financial opportunities. Understanding the different options available, such as a Home Equity Line of Credit (HELOC), can help you make an informed decision about borrowing against the value of your home. In this article, we’ll break down how to qualify for a HELOC, the key requirements for securing a HELOC and explore alternative financial methods.

How to qualify for a HELOC

To qualify for a HELOC, you generally need to:

• Maintain a good-to-excellent credit score: Your credit score indicates how reliably you’ve repaid your past debts. While 720 is often considered a strong score, some loan providers may accept lower scores—requirements vary by lender. However, this might result in higher interest rates or less favorable terms.
• Demonstrate a stable income: Mortgage providers usually require certain documents that verify your income. Acceptable documents vary based off of income sources and may include paystubs, W2s, tax returns and bank statements.
• Have sufficient home equity: Most mortgage lenders want you to have at least 20% equity. For example, if your home is worth $300,000 and you owe $200,000, you have $100,000 in equity, or 33%, which is more than the minimum required.
• Keep a low debt-to-income ratio (DTI): The DTI ratio is the percentage of your gross monthly income that goes toward paying debts. A DTI below 40% is ideal, as it indicates a manageable level of debt relative to your income.

Additionally, loan providers may consider other factors such as home appraisal, employment history and assets or savings. Meeting these qualifications can help improve your chances of securing a HELOC with favorable terms.

Requirements for obtaining a HELOC

To obtain a HELOC, you will need to meet several requirements:

• Proof of income and employment: Acceptable documents vary, but recent pay stubs, tax returns and W2s are commonly requested. This proof verifies your ability to repay the loan. Loan providers look for consistent and stable income, so a history of steady employment or reliable income can be beneficial.
• Home appraisal: A home appraisal determines your home’s current market value, which helps assess the equity available for the HELOC. The appraisal involves a professional evaluating your property to estimate its worth, which can impact how much you can borrow. HELOC products typically use an automatic valuation model (AVM) or electronic values (not completed by a professional), sometimes coupled with an exterior inspection of property; HELOCs do not typically utilize full interior/exterior appraisals.
• Credit history and score: A strong credit history and an excellent credit score reflect your reliability in managing and repaying debt. Score requirements vary by lender. A score of 720 or higher is often required for favorable terms. Some lenders may accept lower scores with less favorable conditions.
• Loan-to-value (LTV) ratio: If your home is valued at $300,000 and you owe $200,000 on your mortgage, the maximum LTV ratio for a HELOC might be around 80%. This means you could potentially borrow up to $40,000 more, depending on other factors.

Disqualifications for a HELOC

If you face any of the following problems, you might be disqualified from getting a HELOC:

• Insufficient home equity: Many mortgage providers require at least 20% equity in your home to qualify. If your equity is below this threshold, it may be challenging to secure a HELOC.
• Poor credit history or low credit score: A history of late payments, bankruptcies or other negative credit events can significantly impact your ability to qualify.
• Unstable income or high debt-to-income ratio: Loan providers usually prefer borrowers with consistent and stable income. If your income is irregular or insufficient, it may raise concerns about your ability to make regular payments.

These factors often influence a lender’s decision, as they assess the risk of lending based on your ability to repay the HELOC.

Alternatives to a HELOC

If a HELOC isn’t the best option for you, you may want to consider these alternatives:

• Home equity loan: A home equity loan allows you to borrow a fixed amount of money using your home’s equity as collateral. You receive a lump sum upfront and repay it in fixed monthly installments over a set term. The potential advantages are predictable payments and a fixed interest rate, which can make budgeting easier. Chase does not offer home equity loans.
• Personal loan: Personal loans are unsecured loans, meaning they don’t require collateral. They offer fixed or variable interest rates with a set repayment period. One potential advantage is that the approval process may be easier for individuals with good credit, but interest rates may be higher compared to secured loans. Chase does not offer personal loans.
• Cash-out refinance: Cash-out refinance involves refinancing your existing mortgage for more than you owe and taking the difference in cash. Your new mortgage will be larger, and you’ll make payments based on the new loan amount and terms. One potential advantage is access to substantial funds, potentially at a lower interest rate than other options, but it extends the term of your mortgage.
• Credit cards: Credit cards offer a revolving line of credit and require minimum monthly payments. One potential advantage is that credit cards can be useful for smaller, short-term expenses.

Each alternative has different benefits and drawbacks. It’s important to consider your entire financial situation, the amount of money needed and repayment capabilities before selecting the option that meets your needs.

In summary

Navigating the world of home financing can seem complex, but understanding your options can make it more manageable. To qualify for a HELOC, you will need equity in your home, a good credit score, stable income and a low debt-to-income ratio.

If a HELOC isn’t the best option for you, don’t worry! There may be plenty of alternatives like home equity loans, personal loans, cash-out refinancing and credit cards. With a bit of research and professional guidance, you can take control of your financial future.