Home equity loans & HELOCs: LTV limits and max loan amounts

Please note: Discover® Home Loans offers a home equity loan product but does not offer HELOCs.

When getting a home equity loan or home equity line of credit (HELOC), your eligibility, loan terms, and other factors may depend on your loan-to-value (LTV) ratio.

An LTV ratio measures how much money you're borrowing against the appraised value of your home. Lenders typically set limits for how high your LTV ratio can be.

What are home equity loans and HELOCs?  

A home equity loan or HELOC enables you to use your home's equity as collateral for a new loan. Equity is the difference between the value of your property and the amount remaining on your mortgage. 

There are key differences between home equity loans and HELOCs. 

A home equity loan typically lets you borrow a lump sum of money that you pay back in fixed increments over a set period. 

A HELOC, on the other hand, functions more like a credit card — you're approved for a certain amount of credit and can then draw on it as needed. You typically only pay interest every month during the initial phase of a HELOC, which is called the draw period. However, you can also make payments toward your loan principal if you'd like. After the draw period ends, you normally enter a repayment period and pay both the interest and principal. 

The interest rate on a home equity loan is usually fixed, while the interest rate on a HELOC is usually variable. 

You can take out a home equity loan or HELOC to pay for larger expenses like home renovations or repairs, medical bills, or college tuition. 

READ MORE: HELOC vs Home Equity Loan: Which is Right for You?

What are home equity loan and HELOC LTV ratio limits?

If a lender sets an LTV ratio limit as part of their eligibility criteria, you may not qualify for a home equity loan or HELOC if your LTV ratio exceeds a certain percentage. 

Both home equity loans and HELOCs can be useful financial tools, but you should understand LTV ratio limits before applying for either one.

Home equity loan and HELOC LTV ratio limits 

For home equity loans and HELOCs, lenders typically set LTV ratio limits to a specific percentage of a home’s appraised value. 

If your lender lets you borrow up to 85% of your home's appraised value, you may be able to take out a loan for that amount minus any outstanding mortgage debt. So, in this example, if your home is valued at $250,000, and you have no mortgage debt, you may be able to borrow  $212,500 with a home equity loan (85% x $250,000 = $212,500).

Working with a lender with a high LTV ratio limit may be helpful if you need to borrow a larger amount of money for home improvements, debt consolidation, or another purpose. 

Keep in mind that your home equity serves as collateral for a home equity loan or HELOC, and you may risk foreclosure if you don’t make payments.

Whatever product you choose, a good credit score may help you qualify for lower interest rates.

LEARN MORE: What is a loan-to-value ratio and how is it calculated?