The Ultimate Guide to Understanding Maximum HELOC Limits

Increasing your HELOC limit is totally possible but the catch here is, if the value of your home goes up, your lender won't automatically increase the amount of money you can borrow.

So, if you’re looking to understand the details of how to go about it, this blog will guide you through.

Understanding HELOC Limits

Let’s first understand how your limits are fixed on a HELOC!

• Home equity plays an important role in HELOC, right? So, your lenders will take a portion out of your home’s value i.e., your equity as your credit limit. Ultimately, this credit limit is going to be your HELOC LIMIT.

• By default, the maximum HELOC amount you can borrow is up to 85% of your home's value. This will be subtracted from your existing HELOC plus the amount you owe on other mortgages.

• This is known as the combined loan-to-value ratio. The ratio is used by all the top home equity lenders to determine the total percentage of the borrower’s property compared to the actual value of the property.

Now, moving on to the maximum loan amounts👇

What's The Maximum HELOC Loan Amount You Can Get?

Your HELOC amount can be increased in different ways and varies based on your lender and the terms of your current HELOC.

Your HELOC amount plus your current mortgage balance should not exceed this percentage of your home’s appraised value.

Some lenders may allow higher limits, even up to 90% to 100%, but typically, the higher the limit, the higher the interest rate you'll pay. Regardless of the loan amount, it’s crucial to choose the best home equity loan companies. Some lenders might approve a higher loan amount, but their terms may not always be in your best interest.

Know Your Maximum HELOC Amount

Let’s say for instance, if your home is worth $400,000 and you still owe $150,000 on your mortgage, you have $250,000 in equity. If your lender agrees to lend you 80% of your equity, that means you can get a max HELOC for up to $200,000.

However, the maximum limit offered to you is influenced by certain factors. Scroll down to know what these factors are.

5 Factors That Limit Your HELOC Amount

Here’s a list of 5 factors that determine how much you can borrow with a HELOC, beyond just the value of your home and what you owe on your mortgage.

• Your Credit Score

The higher your score, the better chance you have of getting a lower interest rate while increasing your HELOC limit. A low interest rate means you can borrow more money. Make sure you maintain a credit score of 620 or more.

• Interest Rate

This is how much extra money you pay on top of what you borrow. Interest rates for HELOCs can change depending on your credit score, and your financial situation.

• Debt-To-Income Ratio (Dti)

This is a comparison of how much money you owe on your debts compared to how much you earn. It helps lenders see if you can afford to borrow more money and repay it on time. The less money you spend on these debts each month, the more you can borrow with a HELOC.

• New Home Appraisal

When you apply for a HELOC, the lender will check how much your home is worth. This helps them see how much equity you have in your home. If your appraised value is more, you can borrow more money based on your equity.

• Lender’s Guidelines

Lenders have their rules set for required credit scores, DTI ratios, and LTV ratios. These rules help them decide if they're comfortable giving you a loan. To get a certain HELOC limit approved, you have to follow these rules and make sure you provide them with all the required documents.

Benefits and Risks of Maximum HELOC Limits

Increasing your HELOC limit can help fund various expenses such as home improvements or medical emergencies, while also presenting opportunities for investment. However, it's crucial to weigh these benefits against the associated risks.

Benefits	Risks
Fund larger expenses You get to fund projects that are expensive but necessary.	Higher fees Increasing the limit may lead to extra expenses like appraisal fees, closing costs which can increase your overall costs.
Consolidate debts Combine all your debt payments and pay them off with the help of one loan.	Interest rates change You could end up paying more in interest over time, making borrowing money more expensive.
Save more During times of emergencies, you can easily access extra money by adding more funds to your HELOC account.	Lowers your credit Score This is because you’re taking on more debt than before.
Control on payments You have control over how much money you can borrow and when it needs to be paid back.	Spending beyond limits Borrowing too much extra money and spending it recklessly could cause regrets later on.
Boost the value of your home The extra money can be used to invest in home improvement projects increasing the overall value of your home.	Ignoring financial goals Having access to extra funds might divert you away from your original savings plans.

6 Tips to Maximize Your HELOC Limit

When there’s a substantial amount of equity accumulated in your home, it might be tempting to increase the HELOC limit and access the funds.

Learn these 6 tips to maximize the benefits of increasing your HELOC limit!

1. Know Your Limit

Understand your maximum HELOC amount and assess your financial situation by consulting with your lender to determine the highest amount you can borrow.

2. Use Your HELOC Wisely

Using the funds for purposes that offer long-term benefits, such as home improvements can increase your property's value.

3. Plan Ahead

Developing a clear plan to use a HELOC can save you thousands of dollars during repayment. Prioritize your spending according to the plan so you can avoid unnecessary borrowing.

4. Monitor Interest Rates

Tracking the HELOC interest rate trends can help you get the best deal at the right time. While variable interest rates can initially be lower, they have the potential to increase over time, leading to higher borrowing costs.

5. Budget Carefully

Creating a detailed budget to manage your HELOC funds responsibly can help you comfortably repay your HELOC debt on time.

6. Regular Reviews

You can adjust your borrowing as needed by reviewing and tracking your available HELOC balance.

Alternatives To Getting A HELOC

If you can't raise your HELOC limits but still need more funds, there are four other options you need to consider.

• Home Equity Loan - You get a lump sum of money and pay it back in the form of fixed monthly payments.

• Cash-Out Refinance - You replace your current mortgage with a larger one and receive the difference in cash. It’s worth checking out the best cash out refinance lenders to ensure you get the best deal.

• Credit Cards - Come with higher interest rates, but they can be handy for urgent expenses like medical bills or important expenses.

• Personal Loans - These loans can be secured or unsecured. They come with different interest rates, either fixed or variable.

Last Thoughts

Buckle up, HELOC borrowers! If you're excited to utilize the extra dollars sitting in your home equity by increasing your HELOC limits, make sure you approach this decision with careful consideration.

By weighing the above discussed factors thoughtfully, you can leverage your HELOC limits effectively to achieve both short-term and long-term financial goals, ensuring maximum return on your investment.