Home Equity Line of Credit

Written by True Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 13, 2022

A home equity line of credit, or HELOC, is a line of credit that is secured by the equity in your home. A line of credit is like a credit card, except that it usually has more stringent payment rules. A HELOC generally offers favorable terms in exchange for the added securitization.

Home Equity Line of Credit Requirements

Typical requirements for a home equity line of credit are:

  • Equity in for of at least 15% to 20% of home's total value
  • Debt-to-income ratio between 40% and 50%
  • Credit score of at least 620
  • Strong history of paying bills on time

Individual requirements will vary by lender, but these are common qualifications.

How Does a Home Equity Line of Credit Work?

A home equity line of credit, or HELOC, is a line of credit that is secured by the equity in your home. The equity in your home is its value minus any amount owed. By securing the LOC with your home, you can generally get more favorable terms, but you risk losing your home if you default.

Is Home Equity Line of Credit Tax Deductible?

Home equity line of credit (HELOC) interest is not tax deductible unless used for purposes that directly and substantially maintain or improve the borrower's home that was borrowed against. Pure cosmetic changes are likely not tax deductible. This has been the case since 2017, since the Tax Cuts and Jobs Act was passed.

Home Equity Line of Credit FAQs

What is a line of credit?

A line of credit is money lent to an individual or business. If a line of credit is revolving, then the line of credit will replenish as the borrower pays back money borrowed.

What does LOC stand for?

The acronym LOC stands for Line of Credit.

What is a revolving line of credit?

A revolving line of credit is one which replenishes when the loan is paid off. An example of this is a credit card. A non-revolving line of credit closes once the loan is paid off, such as a student loan.

What's the difference between a line of credit and a loan?

A loan is typically a lump sum whereas a line of credit is typically revolving which allows for the borrower to draw, repay, and again draw as needed.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.

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