Yes, you can get a loan against your house if you have enough equity in it. Homeowners typically have three options: a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance. All three use your home as collateral, which keeps interest rates lower than unsecured borrowing but puts the property at risk if you fall behind. Equity is simply the gap between what your home is worth and what you still owe on the mortgage, and lenders will let you borrow against a portion of it based on your credit, income, and the size of that cushion.
Three Ways to Borrow Against Your House
The three products deliver the money differently, charge interest differently, and repay differently. Picking the right one depends mostly on whether you need a lump sum, ongoing access to funds, or a reset of your whole mortgage.
Home Equity Loan
A home equity loan hands you a single lump sum at a fixed interest rate, repaid over a set term that typically runs five to thirty years. The monthly payment stays the same for the life of the loan. It sits behind your primary mortgage as a second lien. This is the clean choice when you know the exact amount you need for a one-time expense like a renovation or a medical bill.
Home Equity Line of Credit (HELOC)
A HELOC works more like a credit card secured by your house. The lender approves you for a maximum credit limit, and you draw funds as needed during a draw period that typically lasts ten years. During the draw period, many lenders require only interest payments on what you’ve actually borrowed. When the draw period ends, the loan moves into a repayment phase of roughly ten to twenty years, where you pay down both principal and interest.
Federal regulations require lenders to disclose the length of both periods, how your minimum payment is calculated, and whether a balloon payment could result if the minimum payments don’t fully pay down the balance.1eCFR. 12 CFR 1026.40 – Requirements for Home Equity Plans HELOC rates are almost always variable, built from an index (usually the prime rate) plus a margin the lender sets based on your credit and loan-to-value ratio. When the prime rate rises, your payment rises with it.
Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger one. The lender pays off the old balance and gives you the difference in cash at closing. You walk away with a single monthly payment at a new interest rate. Fannie Mae caps the loan-to-value ratio for a cash-out refinance on a single-unit primary residence at 80%, so you need at least 20% equity to qualify.2Fannie Mae. Eligibility Matrix The tradeoff is that you’re resetting your mortgage clock and paying interest on the full new balance, not just the cash-out portion.
What You Need to Qualify
Approval comes down to three measurements: how much equity you have, how much of your income already goes to debt, and how you’ve handled credit before.
Equity in the Home
Lenders want you to keep a cushion of equity after borrowing. Most require 15% to 20% of the home’s value to remain untouched. If you already have a primary mortgage, the lender calculates a combined loan-to-value ratio across all debts secured by the property. A common ceiling is 80% to 85% of the appraised value for all liens combined, though some lenders go as low as 60% depending on the product.
To confirm the value, lenders order a professional appraisal. For a standard single-family home, expect to pay roughly $300 to $600, with higher costs for larger or more complex properties. Some lenders use automated valuation models for smaller loan amounts; those are faster and cheaper but less precise, especially in neighborhoods with few recent sales.
Debt-to-Income Ratio
Your debt-to-income ratio compares your total monthly debt payments, including the proposed new loan, to your gross monthly income. For years, 43% was the regulatory ceiling for “qualified mortgages” under the Dodd-Frank Act’s ability-to-repay rules. The Consumer Financial Protection Bureau has since replaced that hard cap with a price-based approach, but most lenders still treat 43% as a practical upper limit for home equity products.3Consumer Financial Protection Bureau. Qualified Mortgage Definition Under the Truth in Lending Act – General QM Loan Definition The lower your ratio, the better your rate.
Credit Score
Most lenders look for a minimum credit score of around 680 for home equity products. Some will go as low as 620 if your equity and income are strong, but you’ll pay a higher rate for it. Scores above 720 generally unlock the best terms, and even a modest bump from the upper-fair range into “good” (670 and above) can meaningfully reduce your interest cost over the life of the loan.
What It Costs to Borrow
Borrowing against your home isn’t free. Closing costs on a home equity loan or HELOC generally run 2% to 5% of the loan amount. On a $50,000 loan, that works out to $1,000 to $2,500 in upfront fees before you see a dollar.
The bill typically bundles an origination fee of about 0.5% to 1% of the loan, the appraisal ($300 to $600), a title search and title insurance (which together often add another 0.5% to 1% of the loan), document preparation and county recording fees of roughly $100 to $550, and a credit report fee of $30 to $50. Some lenders waive certain HELOC closing costs to attract borrowers, but read the fine print: waived fees are sometimes clawed back if you close the line within the first two or three years. Ask any lender for a full fee breakdown before signing, and compare across at least two or three. Origination fees and title insurance costs are often negotiable.
How Long It Takes and Your Right to Cancel
After you submit your application and supporting documents, the lender orders an appraisal and begins underwriting. The full process from application to funding typically takes about 30 days, though well-prepared borrowers sometimes close in two weeks. Complex income, title issues, or a busy lending pipeline can push it longer.
Once you sign the loan documents, federal law gives you a cooling-off period before the money is released. Under 15 U.S.C. ยง 1635, you have until midnight of the third business day after closing to cancel the transaction for any reason, without penalty.4Office of the Law Revision Counsel. 15 USC 1635 – Right of Rescission as to Certain Transactions This right of rescission applies to home equity loans and HELOCs because they put a security interest on your primary residence. The statute counts business days, so weekends and federal holidays don’t count toward the three.
Cash-out refinancing has a wrinkle. If you refinance with the same lender and take no new cash, the rescission right doesn’t apply. If you pull cash out, the right of rescission applies at least to the new money portion of the loan.5Consumer Financial Protection Bureau. 12 CFR 1026.23 – Right of Rescission If you refinance with a different lender entirely, the full rescission right covers the whole transaction. After the cooling-off period expires without cancellation, the lender releases the funds by wire transfer or certified check.
Can You Deduct the Interest?
Whether interest on a home equity loan or HELOC is tax deductible depends entirely on what you do with the money, not what the loan is called. Under current federal rules, extended by the One Big Beautiful Bill Act, interest on home-secured debt is deductible only if the borrowed funds are used to buy, build, or substantially improve the home that secures the loan.6Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction A HELOC spent on a kitchen remodel qualifies. The same HELOC spent paying off credit card debt or funding a vacation doesn’t, no matter how it’s reported on your Form 1098.
Total home-secured debt eligible for the interest deduction is capped at $750,000 ($375,000 if married filing separately). That ceiling covers your combined mortgage and home equity debt used for qualifying purposes. The cap was originally set by the Tax Cuts and Jobs Act and has now been made permanent, replacing the older $1 million threshold some borrowers may remember. Points paid on a home equity loan also lose their deductibility if the proceeds aren’t used for home improvement.6Internal Revenue Service. Publication 936 – Home Mortgage Interest Deduction
What You’re Risking
The interest rates on home equity products are attractive precisely because your house is the collateral. That is also the biggest risk. If you stop paying, the lender can foreclose.
Foreclosure
Default on a home equity loan or HELOC typically starts with a written notice after one missed payment and escalates through an acceleration demand (full balance due immediately) after several missed payments. Foreclosure proceedings generally begin after roughly 90 to 120 days of missed payments, though timelines vary by lender and state. If the property sells at auction for less than the outstanding debt, some states allow the lender to pursue a deficiency judgment for the remaining balance, which can lead to wage garnishment. A foreclosure stays on your credit report for seven years.
Because a home equity loan sits in a second lien position behind your primary mortgage, the primary lender gets paid first from any foreclosure sale. That complicates matters for the home equity lender, but it does not protect you. You lose the house either way.
HELOC Payment Shock
The most common surprise hits HELOC borrowers when the draw period ends. If you’ve been making interest-only minimum payments for ten years, your monthly obligation can jump sharply when you enter the repayment phase and start paying down principal. Add a variable rate that may have climbed in the meantime, and some borrowers face an increase they genuinely cannot afford. Paying down some principal during the draw period, even in small amounts, softens the transition considerably.
Going Underwater
If your home’s value drops after you borrow, you could end up owing more than the property is worth. The risk grows with high combined loan-to-value ratios. Being underwater doesn’t trigger any immediate legal consequence, but it eliminates your ability to refinance or sell without bringing cash to the closing table. Borrowing conservatively below your maximum approved amount builds a buffer against market declines.