Home equity represents the difference between your home's value and your remaining mortgage balance. Both HELOCs and home equity loans allow you to borrow against this equity, but they work differently.

Understanding Home Equity Borrowing Limits

Lenders typically allow borrowing up to 80-85% of your home's equity. For example, if your home is worth $300,000 with a $150,000 mortgage balance, you have 50% loan-to-value ratio. With an 80% CLTV limit, you could potentially borrow up to $90,000.

HELOC vs. Home Equity Loan: Key Differences

HELOC Features:

• Variable interest rates (some lenders offer fixed-rate options)
• 10-year draw period with interest-only payments
• Flexible borrowing up to credit limit
• 20-year repayment period follows draw period
• Payments vary with interest rates

Home Equity Loan Features:

• Fixed interest rate
• One-time lump sum disbursement
• Fixed monthly payments
• Up to 30-year repayment term
• Immediate principal and interest payments

Qualification Requirements:

• 15-20% minimum equity
• Debt-to-income ratio below 50% (43% preferred)
• Credit score of 640-660 or higher
• Strong credit history

Choosing Between HELOC and Home Equity Loan

Consider a HELOC if you:

• Need flexible access to funds
• Want to pay interest only on what you use
• Can manage variable payments

Choose a Home Equity Loan if you:

• Need a specific amount for a one-time expense
• Prefer predictable monthly payments
• Want protection from interest rate increases

Remember that both options use your home as collateral, meaning you risk foreclosure if you default on payments. Compare offers from multiple lenders to find the best terms for your situation.

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