Yes, taking a loan out on your house is possible if you have built up enough equity and your finances support the payment. Homeowners generally have three routes: a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance. Most lenders want you to keep at least 15% to 20% equity in the property after you borrow, and they will look closely at your credit score, income, and existing debts before approving anything. Each option carries the same underlying risk: if you default, you can lose the house.
What You Need to Qualify
Lenders measure how much you can borrow using the loan-to-value ratio, or LTV, which is the total debt secured by your home divided by its appraised value. For a standard cash-out refinance on a single-family primary residence, Fannie Mae caps LTV at 80%, meaning you need to keep at least 20% equity after borrowing.1Fannie Mae. Eligibility Matrix Home equity loans and HELOCs may allow a combined LTV up to 85%, though that varies by lender. On a home worth $400,000, the total of all mortgages and home equity debt would typically need to stay at or below $320,000 to $340,000.
Your debt-to-income ratio is the second major hurdle. DTI is your total monthly debt payments divided by your gross monthly income. Fannie Mae’s automated underwriting system allows DTI up to 45% on most conventional loans, with some cash-out refinances requiring additional reserves above that level.1Fannie Mae. Eligibility Matrix The lower your DTI, the better your chance of approval and the better your rate.
Credit score requirements are set by each lender rather than by law. Most lenders look for a minimum score around 680 for home equity products, though some accept scores as low as 620 when income or equity is strong. Borrowers above 720 generally see the lowest rates.
You May Have to Wait After Buying
You cannot always borrow against the house the moment you close on it. For a cash-out refinance, Freddie Mac requires at least one borrower to have been on the title for a minimum of six months before the new loan closes, and the first mortgage being refinanced must generally be at least 12 months old. Exceptions exist when the loan being replaced is itself a HELOC or when the transaction converts a manufactured home into real property.2Freddie Mac. Cash-Out Refinance Mortgages For standalone home equity loans and HELOCs, lender-set waiting periods of three to six months after purchase are common.
The Three Ways to Borrow Against Your Home
Each option delivers the money differently and repays it on different terms. The right choice depends on whether you want ongoing access to cash, one lump sum, or to replace your existing mortgage entirely.
Home Equity Line of Credit
A HELOC works like a credit card secured by your home. You receive a revolving credit line with a set limit and draw from it as needed during the draw period, which typically lasts 5 to 15 years, with 10 years the most common. During the draw phase, most HELOCs allow interest-only payments on whatever you have borrowed.3Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans After the draw period ends, the line enters a repayment phase where you pay back both principal and interest, often over 10 to 20 years. The payment can jump significantly at that transition, so plan for it.
HELOC rates are almost always variable. The rate is calculated by adding a lender-set margin to a benchmark index, commonly the prime rate.4Consumer Financial Protection Bureau. For an Adjustable-Rate Mortgage, What Are the Index and Margin and How Do They Work Your monthly payment can rise or fall as market rates move. Federal law requires lenders to disclose any fees to open, use, or maintain the line, including annual fees, before you commit.3Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans
Home Equity Loan
A home equity loan gives you a single lump sum at a fixed interest rate, which you repay in equal monthly installments over a set term, commonly 5 to 30 years.5Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit The payment stays the same for the life of the loan, which makes budgeting straightforward. The loan is recorded as a junior lien, meaning it sits behind your primary mortgage in priority. In a foreclosure sale, the first mortgage is paid in full before anything flows to the home equity lender.
Cash-Out Refinance
A cash-out refinance replaces your existing primary mortgage with a new, larger one. The new lender pays off the old loan and hands you the difference in cash at closing. You walk away with a single monthly payment under new terms: a new interest rate, a new repayment period, and potentially new closing costs. This can make sense when current rates are below your existing mortgage rate, but it resets your loan term and restarts equity accumulation from the new balance. Fannie Mae limits cash-out refinances on a single-family primary residence to 80% LTV.1Fannie Mae. Eligibility Matrix
What It Costs to Borrow
Closing costs typically run about 1% to 5% of the loan amount. The specific charges depend on the lender, the loan type, and the property location. Common fees include:
- Origination fee, usually 0.5% to 1% of the loan amount, covering processing and underwriting. Often negotiable.
- Appraisal fee, generally several hundred dollars depending on property size and location.
- Title search and lender’s title insurance, with combined costs that vary widely by loan amount and jurisdiction.
- Credit report fee, typically $30 to $50.
- Recording fee charged by the county, often $25 to $100.
HELOCs may also carry ongoing annual fees to maintain the line. Ask every lender for a complete fee breakdown early so you can compare offers directly.
Documents and Timing
Lenders require extensive paperwork to verify your income, assets, and the property’s value. Gather these before you apply:
- W-2 forms from the past two years and recent pay stubs covering at least 30 days. Self-employed borrowers typically need two years of federal tax returns.
- A current mortgage statement showing your outstanding balance and payment history.
- Proof of homeowners insurance.
- Recent bank and investment statements showing liquid assets and reserves.
Most lenders use the Uniform Residential Loan Application, also called Fannie Mae Form 1003, which collects your estimated property value, monthly debts, employment details, and the amount you want to borrow.6Fannie Mae. Uniform Residential Loan Application (Form 1003) The lender will usually order a professional appraisal, in which a certified appraiser inspects the home and compares it to recent nearby sales to confirm your equity. From application to funding generally takes two to six weeks.
Your Right to Cancel
Once you sign the loan documents for a home equity loan or HELOC, federal law gives you three business days to cancel for any reason without penalty. The clock starts on the last of three events: the day you close, the day you receive the required rescission notice, or the day you receive all material disclosures.7eCFR. 12 CFR 1026.23 – Right of Rescission If you cancel in time, the lender’s security interest in your home is voided and you owe nothing.
For this count, “business day” means every calendar day except Sundays and federal public holidays, so Saturdays do count.8Consumer Financial Protection Bureau. 12 CFR 1026.2 – Definitions and Rules of Construction Close on a Wednesday and the window ends at midnight Saturday. Close on a Friday and it ends at midnight the following Tuesday, since Sunday does not count.
The right applies whenever a lender takes a security interest in your primary home, including home equity loans, HELOCs, and cash-out refinances where new money is advanced beyond the existing balance. It does not apply to the original mortgage you took out to buy the home.
Is the Interest Tax Deductible?
Interest on a home equity loan or HELOC is deductible on your federal return only if you use the borrowed money to buy, build, or substantially improve the home that secures the loan.9Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Use the funds for anything else, such as paying off credit cards, covering tuition, or buying a car, and the interest is not deductible.
When the funds do qualify because they went toward home improvement, the debt counts against the home acquisition debt limit. For mortgages taken out after December 15, 2017, the combined limit on deductible home acquisition debt is $750,000, or $375,000 if married filing separately.9Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction That cap was made permanent by the One Big Beautiful Bill Act signed in 2025 and continues to apply for 2026 and later tax years. For older mortgages originated before that date, the limit remains $1 million, or $500,000 if married filing separately.
The IRS defines a substantial improvement as work that adds value to the home, prolongs its useful life, or adapts it to new uses.9Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Routine maintenance like repainting a room on its own does not count, though painting as part of a larger renovation can be included. Keep receipts in case the IRS asks you to document the deduction.
The Risks Before You Sign
The biggest risk is losing the house. Any loan secured by your home creates a lien, and the lender holding it can start foreclosure if you default, even if the loan sits behind your primary mortgage. In a foreclosure sale, the first mortgage is paid first, which means a junior lender may not recover the full amount owed and could pursue other remedies such as a deficiency judgment, depending on state law.
With a HELOC, the move from interest-only payments during the draw period to full principal-and-interest payments during repayment can cause a sharp payment increase. If you have borrowed heavily and rates have risen, the new monthly amount may strain your budget. A cash-out refinance resets or extends your mortgage term, so you can end up paying more total interest even at a lower rate, and you build equity back more slowly.
Falling home values add another layer. If the market drops and your home is worth less than the total debt against it, you are underwater, owing more than the property can sell for. That can make it difficult to sell or refinance and leave you responsible for the shortfall. Before you borrow, make sure the purpose justifies putting the home on the line and that the monthly payment still works if your circumstances change.