What is the minimum credit score typically required for a HELOC? The minimum credit score required for a HELOC varies by lender but is typically around 620.
Credit score: At least 620
In many cases, lenders will set a minimum 620 credit score to qualify you for a home equity loan — though the limit can be as high as 660 or 680 in some cases. Still, there are some options for a home equity loan with bad credit.
Credit score requirements for HELOCs
The credit reporting agency Experian says borrowers typically need a credit score of 680 to qualify for a home equity line of credit. At Freedom Mortgage, we can often help you qualify for a cash out refinance with a lower credit score than may be required for a HELOC.
Past Bankruptcy or Foreclosure
Having a bankruptcy or foreclosure on your short- to mid-term credit history will likely make it difficult to qualify for all types of loans, including HELOCs. These marks against your creditworthiness are not permanent, but they also don't vanish overnight.
Conventional loan
Conventional loans are the most common type of mortgage, accounting for about 70% of the market. They usually require a 620 credit score, though some lenders will consider applicants with scores as low as 580.
The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of mortgage. For an FHA loan, a popular choice among first-time homebuyers for its lower down payment requirement, the minimum credit score is usually around 580.
HELOCs usually aren't difficult to qualify for as long as you meet a few basic lending requirements.
Understand the reason for the denial
The first step to take after being denied a HELOC or home equity loan is to understand why the lender rejected your application. Lenders typically assess several factors, including your credit score, income, debt-to-income ratio and the amount of equity in your home.
Lenders would perceive you as a credit risk and possibly decline your loan application if you have a low credit score. In addition to having a good credit score, you should have a debt-to-income (DTI) ratio that meets your lender's requirements.
Calculating the monthly cost for a $50,000 loan at an interest rate of 8.75%, which is the average rate for a 10-year fixed home equity loan as of September 25, 2023, the monthly payment would be $626.63. And because the rate is fixed, this monthly payment would stay the same throughout the life of the loan.
Most HELOC lenders want to see a minimum credit score of at least 680, although some will go as low as 620. Keep in mind that your FICO score directly impacts your interest rate. You'll typically get the lowest HELOC rates with a score above 700.
A home equity loan and a HELOC are two ways you can tap into the equity of your home. To qualify for either loan with reasonable terms, you should have at least 15% to 20% of equity in your home, a LTV ratio of 80% or lower, a credit score of at least 620 (the higher, the better) and a DTI ratio no higher than 43%.
Instead of traditional income verification methods, the lender can use bank statements or asset verification to ensure borrowers can repay their loans. With no document home equity loans, you can borrow against the equity built up in your home without providing a significant amount of income documentation.
Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying your debt. While the percentage requirement can vary by lender, you can safely expect to need a DTI ratio of less than 47% to be approved for a HELOC.
If your application is turned down, it's likely to be because you don't meet lenders' home equity loan requirements in one of these areas: Available equity: You typically need more than 20% equity built up to qualify for a home equity loan. Credit score: Few lenders will approve you if your score is below 620.
The denial rates for HELOCs are 46%, compared to 12% for a conventional mortgage. Lenders generally require a credit score of at least 680, although many prefer a score above 720. While some lenders may accept a score lower than 680, the borrower's financial profile must be exceptional in other areas.
While having an unused HELOC can be advantageous in many ways, it's essential to be aware of the potential costs. Some HELOCs come with annual fees or maintenance fees, which you might still have to pay even if you don't use the credit line. The fees you could incur, even with an unused HELOC, include: Inactivity fees.
Even if you open a home equity line of credit and never use it, you won't have to pay anything back.
In October of 2023, Bankrate data showed rates were averaging 8.75 percent on home equity loans and 9 percent for HELOCs. There is one bright spot, though: If you use a HELOC or home equity loan for housing-related repairs or remodels, the interest can be tax-deductible. That can reduce the real cost of your financing.
However, the average time from application to approval for a HELOC is around 2 to 6 weeks. Underwriting is generally the part of the process that takes the longest, which can be anywhere from a week to 30 days or longer.
You can use a HELOC to pay off debt, including credit card debt. You'll generally have a long period of time in which to make the HELOC payments, and at a much lower interest rate. A HELOC isn't your only option, and you should explore other avenues — and their associated interest rates — before you opt for one.
A 600-620 score is a 'fair' credit score and is considered subprime, which means your credit or loan application may have undesirable conditions that can prevent approval. It's not 'good' but it's certainly not bad either.