HELOC rules involve using your home as collateral for a revolving line of credit, requiring significant home equity (often 80-85% Loan-to-Value), good credit (680+ FICO), low Debt-to-Income (DTI) ratio, and steady income, with variable interest rates, a draw period for borrowing, and a repayment period for paying it back, plus mandatory disclosures on APR, fees, and rate caps.
HELOCs are interesting, as they are open-end lines of credit governed by Subpart B of Reg Z, but also have their own rules under section 1026.40. Please note that these rules cite to each other, however, section 1026.40 is more detailed and its commentary contains helpful examples of rule application.
Here are the typical requirements for home equity loans and HELOCs:
Parts of the Truth in Lending Act and Regulation Z exclude or have. weaker coverage for HELOCs: Under TILA, the APR for a HELOC includes only interest—all other finance charges are disregarded when calculating the APR. TILA's restrictions on loan originators, their compensation, and steering do not apply to HELOCs.
Unlike some loans that can only be used for a specific purpose, like student loans or auto loans, HELOC funds can be used for almost anything. That said, the smartest uses tend to focus on increasing the long-term value of your home or improving your financial stability.
The "HELOC 65% rule" refers to a Canadian regulatory guideline, primarily from OSFI (Office of the Superintendent of Financial Institutions) (2, 6, 12), capping the maximum Loan-to-Value (LTV) ratio for Home Equity Lines of Credit (HELOCs) at 65% of a property's value, replacing older limits (like 80%) to reduce risk, meaning you can borrow up to 65% of your home's value, minus your mortgage balance, for a smaller credit line than before.
However, several types of credit fall outside Regulation Z's scope. Business loans, commercial credit, agricultural loans, federal student loans, and loans for public utility services are generally exempt. Additionally, loans above certain dollar thresholds may be exempt from some requirements.
The TILA-RESPA rule applies to most closed-end consumer credit transactions secured by real property, but does not apply to: HELOCs; • Reverse mortgages; or • Chattel-dwelling loans, such as loans secured by a mobile home or by a dwelling that is not attached to real property (i.e., land).
Both the ECOA and the FCRA have adverse action requirements that may apply when a creditor suspends a HELOC or reduces the credit limit because of a significant decline in the value of a property.
The 3-7-3 Rule in mortgages isn't a loan type but a federal timeline from the TILA-RESPA Integrated Disclosure (TRID) rule, ensuring borrower protection by mandating disclosures within 3 business days of application, a 7-business-day wait between the initial Loan Estimate and closing, and another 3-day wait if significant changes (like APR) occur, giving borrowers time to review costs before committing to a loan.
The Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, require creditors to disclose information relating to the cost of loans, comply with advertising requirements, and follow standards in processing of credit balances.
In 2010, the Dodd-Frank Act amended TILA by expanding the scope of HOEPA coverage to include purchase-money mortgages and open-end credit plans (i.e., home equity lines of credit, or HELOCs) and amended HOEPA's coverage tests.
Beginning on January 1, 2022, a financial institution originating 200 or more open-end lines of credit must collect, record, and report HMDA data for open-end lines of credit.
Mortgage loans to which the TRID Rule does not apply include HELOCs, reverse mortgage loans, or mortgage loans secured by a mobile home or dwelling that is not attached to real property.
What Does RESPA Cover? Whenever a lender makes a federally related mortgage loan, whether it is a first mortgage or subordinate mortgage, i.e. a second mortgage, HELOC (home equity line of credit) or other subordinate lien involving residential 1-4 family properties, RESPA applies.
TILA is a federal law that protects consumers from unfair or deceptive practices by lenders, such as hidden fees or misleading terms. RESPA is a federal law that requires lenders to provide information about the settlement costs and services involved in a mortgage transaction.
The examination procedures will use “TILA” interchangeably for Truth-in-Lending Act and Regulation Z, since Regulation Z is the implementing regulation. Unless otherwise specified, all of the regulation references are to Regulation Z ( 12 CFR 1026 ).
Seven common types of loans include Personal Loans, Auto Loans, Student Loans, Mortgage Loans, Home Equity Loans, Payday Loans, and Debt Consolidation Loans, each serving different financial needs, from major purchases like cars and homes to consolidating debt or managing unexpected expenses.
Exempt transactions: RESPA does not apply to all-cash purchases (including seller financing arrangements), seller-financed deals or transactions involving commercial or industrial properties.
Key Takeaways
A HELOC can be a smart option if you need flexible access to cash and want to borrow only what you use at a lower rate than most loans. Your home is the collateral, so you must be confident you can repay the line even if rates rise or your finances change.