Home equity loans give people in need of money the chance to borrow a lump sum of cash using their home as collateral. How much depends on a variety of factors, including the property’s value, the amount still owed on the mortgage, the applicant’s income and credit history, and each lender’s appetite for risk. But don't count on getting more than the equity available in your home. Here's why.

How Much Equity Do You Have in Your Home?

The amount you can borrow with a home equity loan generally depends on how much equity you have in your home. Home equity is your home’s value minus any liens attached to it. In other words, it is the own🥃ership stake you've built in the property.

So if your home is 澳洲幸运5官方开奖结果体彩网:appraised at $400,000 and you still owe $250,000 on your mortgage𒉰, then you have $150,000 equity in the property. That $150,000 represents 37.5% of your home’s current value, with the rest still owned by the bank.

Home equity rises when you pay down your mortgage and when your home increases in value. Equity can also fall if the 澳洲幸运5官方开奖结果体彩网:principal isn’t paid back, as is the case if you have an 澳洲幸运5官方开奖结果体彩网:interest-only mortgage and the property’s selling price depreciates.

What’s the Maximum Amount You Can Borrow?

Bigger loans are generally more lucrative to creditors. However, larger sums also come with a higher risk of default.

Most lenders don't lend home equity loans worth more than the applicant’s homeownership stake because that would leave a chunk of the loan potentially 澳洲幸运5官方开奖结果体彩网:unsecured. A line needs to be drawn somewhere and, in many cases, the magic number is 80. Though each lender is free to choose how high to go, many won’t lend more than 80% of what the homeowner’s interest in their property is worth.

The 80% limit

A limit of 80% isn’t a guarantee but rather the maximum that can generally be borrowed, including the amount you may still owe on a mortgage. How much the lender is actually willing to give you depends on your individual credit history and income.

For instance, if your home is appraised for $350,00ඣ0 and you still have a $180,000 mortgage on it to pay off, your stake in the property, or equity, is worth $170,000. Should the lender apply an 80% cap, that effectively means it would lend you up to $136,000.

That’s the best-case scenario. If your monthly income doesn't leave much room for error—or your 澳洲幸运5官方开奖结果体彩网:credit score isn’t high due to a patchy track record of paying back debts—the maximum you may be offered could be🎃 much less.

Why Are Lenders So Cautious?

Many lenders impose limits to cover their backs. With a home equity loan, a house serves as collateral, meaning the lender can sell it to recoup some or all of its losses if the borrower is unable to keep up with payments. That added protection is what prompts the lender to make the money available in the first place. It steadily begins to erode as the size of the loan grows relative to the value of the borrower’s ownership stake in the property.

Imagine you were lent $200,000 against the $170,000 of equity held in your home. This loan is extremely risky to the lender. In the event of early default, it could only recoup about $170,000 by pursuing 澳洲幸运5官方开奖结果体彩网:foreclosure, forcing it to use other costly methods to extract the rest of the money from you, assuming the home equity loan is a recourse debt.

High Loan-to-Value (LTV) Home Equity Loans

There are a handful of lenders that are willing to lend homeowners more. However, for the reasons outlined above, such loans tend to be offered only to applicants with an excellent credit history and a consistent level of 澳洲幸运5官方开奖结果体彩网:disposable income that's comfortably💮 above the monthly repayment 𝔍obligations.

High 澳洲幸运5官方开奖结果体彩网:loan-to-value (LTV) home equity loans also tend to carry higher 澳洲幸运5官方开奖结果体彩网:interest rates to compensate the lender for the extra risk it assu𝓰mes. But, there are no guarantees. Even if the applicant has a good income and a stellar history of honoring debts, a job loss or large unexpected expense could change all of that. There is also a danger (however rare it may seem) that the home's value depreciates. This could lower the amount the lender can retrieve through foreclosure proceedings.

These various risks prompted the 🐻澳洲幸运5官方开奖结果体彩网:Federal Deposit Insura꧅nce Corporation (FDIC) to advise lenders offering loans with LTVs exceeding 90% to tack on 澳洲幸运5官方开奖结果体彩网:mortgage insurance and other forms of protection. Usually, it is the borrower who is expected to foot the bill for these safeguards, making the already costly high-LTV home equity loan even more expensive.

When Homeowners Could Ge🌱t More Than Their Existing Equity

Some home equity loan lenders will go higher than others. However, vi🅠rtually none are prepared to lend out more than a homeowner’s existing equity. The only potential exception to this rule is in the unlikely scenario that you bought a house without putting money down or paying back any of the principal, and it rapidly increased in value.

This may occur if you purchased your house eight years ago for $150,000 and it’s now worth $200,000. Despite not paying any of the loan back and theoretically not building any equity yet, you might qualify for a home equity loan based on the property’s appreciated value.

The Bottom Line

Credible lenders would generally never sign off on a home equity loan for more than the applicant’s existing equity in their property because that would result in a chunk of 🧸the loan being unsecured and harder to collect in the event of default. And if the opportunity did somehow present itself, the amount you would be charged in interest and other expenses could force you to have second thoughts, an🐼yway.

Before 🍸getting frustrated, homeowners in need of cash should realize that lender-imposed limits also work in their favor. Take out a loan that’s worth more than y🐎our ownership stake in your home and you could lose much more than the roof over your head.