Yes, if you have enough equity in your home and qualifying credit and income, you can take a loan out on your house. Homeowners generally do this in one of three ways: 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 borrowing, and every option puts the house itself on the line as collateral.
Can You Qualify? The Baseline Requirements
Three numbers decide whether a lender will approve you: your loan-to-value ratio, your debt-to-income ratio, and your credit score.
The loan-to-value ratio (LTV) 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 at least 20% equity remaining after the new loan.1Fannie Mae. Eligibility Matrix Home equity loans and HELOCs sometimes allow a combined LTV up to 85%, though the exact figure varies by lender. On a home worth $400,000, all mortgages and home equity debt together would typically need to stay at or below $320,000 to $340,000.
The debt-to-income ratio (DTI) is your total monthly debt payments divided by gross monthly income. Fannie Mae’s automated underwriting allows DTI up to 45% for most conventional loans, with additional reserves required on some cash-out refinances above that level.1Fannie Mae. Eligibility Matrix Manual underwriting can require a DTI below 36% absent compensating factors. A lower DTI means both better approval odds and a better rate.
Credit score minimums are set by each lender, not by statute. Most look for a score around 680 for home equity products, though some accept 620 with stronger income or equity. Scores above 720 generally earn the lowest rates.
One timing wrinkle: for a cash-out refinance, Freddie Mac requires at least one borrower to have been on the property title for at least six months before closing, and the existing first mortgage being refinanced must generally be at least 12 months old.2Freddie Mac. Cash-Out Refinance Mortgages If you just bought the place, expect to wait.
The Three Ways to Borrow Against Your Home
The right choice depends on whether you need a single lump sum, ongoing access to cash, or a full replacement of your existing mortgage.
Home Equity Loan
A home equity loan gives you one lump sum at a fixed interest rate, repaid in equal monthly installments over a set term of roughly 5 to 30 years.3Federal 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 simple. The loan sits as a junior lien behind your existing mortgage, so if the home were sold through foreclosure, the first mortgage would be paid first.
Home Equity Line of Credit (HELOC)
A HELOC is a revolving credit line secured by your house. You draw against it as needed during a draw period, typically 5 to 15 years, with 10 years being the most common. Most HELOCs allow interest-only payments on the amount borrowed during that phase.4Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans When the draw period ends, the line enters a repayment phase covering both principal and interest, often stretched over 10 to 20 years. The jump in payment at that transition can be significant, so plan for it.
HELOC rates are almost always variable. Your rate is a lender-set margin added to a benchmark index, commonly the prime rate.5Consumer Financial Protection Bureau. For an Adjustable-Rate Mortgage, What Are the Index and Margin and How Do They Work Your monthly payment can climb or fall as market rates move. Federal law requires lenders to disclose all fees to open, use, or maintain the line before you commit, including any annual fee.4Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans
Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger loan. The new lender pays off the old balance and hands you the difference in cash at closing. You walk away with one monthly payment on new terms, a new rate, and a new repayment period, plus new closing costs. This can make sense when market rates are below your current mortgage rate, but it resets the clock on your term and restarts equity accumulation from the higher balance. Fannie Mae caps cash-out refinances on a single-family primary residence at 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 product, and the property location. Common line items include:
- Origination fee, usually 0.5% to 1% of the loan amount for the lender’s processing and underwriting work. This is often negotiable.
- Appraisal fee, generally several hundred dollars depending on property size and location. Some lenders accept an automated valuation model in place of a full appraisal on certain transactions.
- Title search and lender’s title insurance, which vary widely by loan amount and jurisdiction.
- Credit report fee, typically $30 to $50.
- Recording fee paid to the county recorder’s office, often $25 to $100 depending on the jurisdiction.
HELOCs can also carry ongoing annual fees to keep the line open. Ask any lender for a complete written fee breakdown early so you can compare offers on the same basis.
How Long It Takes, and Your Right to Cancel
After you submit your application and supporting documents, an underwriter verifies your finances, credit, and property value, and checks for any changes since you applied. From application to funding usually takes two to six weeks.
Once you sign the loan documents on a home equity loan, HELOC, or a cash-out refinance where new money is advanced, 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.6eCFR. 12 CFR 1026.23 – Right of Rescission Cancel within that window and the lender’s security interest in your home is voided and you owe nothing.
“Business day” here means every calendar day except Sundays and federal public holidays. Saturdays count.7Consumer Financial Protection Bureau. 12 CFR 1026.2 – Definitions and Rules of Construction Close on a Wednesday and the right expires at midnight Saturday. Close on a Friday and it expires at midnight the following Tuesday, since Sunday drops out.
One boundary worth knowing: rescission does not apply to the original mortgage you use to purchase the home. It only applies when a lender takes a security interest in a home you already own.
Is the Interest Tax Deductible?
Only in specific circumstances. Interest on a home equity loan or HELOC is deductible on your federal return only if you use the money to buy, build, or substantially improve the home that secures the loan.8Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Use the funds to pay off credit cards, cover tuition, or buy a car, and the interest is not deductible.
When the funds do qualify, the debt counts toward 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.8Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction That cap was made permanent by the One Big Beautiful Bill Act signed in 2025, so it continues to apply for 2026 and later. Older mortgages originated before December 15, 2017 keep the earlier $1 million cap ($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.8Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Routine maintenance on its own does not qualify, though maintenance done as part of a larger renovation can be included. Keep receipts showing how you spent the money.
The Risks Before You Sign
Every option here uses your house as collateral, and that is the risk that overrides all others. A home equity loan or HELOC creates a lien on the property, and the lender can initiate foreclosure if you default, even though the debt sits behind your primary mortgage. In a foreclosure sale, the first mortgage is paid before any junior lien, which means a second lender may not recover the full amount and could pursue other remedies such as a deficiency judgment, depending on state law.
Payment shock is the specific HELOC risk. Moving from interest-only payments during the draw period to full principal-and-interest payments in the repayment phase can push the monthly bill up sharply, especially if you have run a large balance and rates have risen. A cash-out refinance carries its own version of the same problem: extending or resetting the mortgage term can mean paying more in total interest even at a lower rate, and it slows down how fast you build equity back.
Then there is the market. If home values drop and total debt exceeds what the property can sell for, you are underwater. Selling or refinancing becomes hard, and you may owe the shortfall out of pocket. Before you sign, be honest about whether the reason for the loan is worth putting the house behind it, and confirm the payment fits your budget even if income drops or rates rise.