How to Calculate Your Home Equity and Qualify for a HELOC or Home Equity Loan

Understanding your home's equity is the first step to unlocking its value for a Home Equity Line of Credit (HELOC) or a Home Equity Loan.

By Garret Merkley · Explainer · Jun 17, 2026

Branched from Understanding the Difference Between HELOCs and Home Equity Loans

Quick take

Home equity is the portion of your home you own outright: Current Market Value - Mortgage Balance.
Lenders use Loan-to-Value (LTV) to determine how much you can borrow against your equity.
Most lenders cap LTV at 80-90% for HELOCs and Home Equity Loans.
A higher credit score and stable income are also crucial for qualification.

Home equity is the difference between your home's current market value and the total amount you still owe on all mortgages and liens against it. It represents the portion of your home you own outright, increasing as you pay down your mortgage and as your home's value appreciates.

Calculating Your Home Equity

Calculating your home equity is straightforward. First, you need an accurate estimate of your home's current market value. You can get this from a professional appraisal, a comparative market analysis (CMA) from a real estate agent, or by looking at recent sales of similar homes in your area. Next, find your current mortgage balance(s) from your lender or mortgage statements. The basic formula is:

Home Equity Formula

Current Market Value - Total Mortgage Balance(s) = Home Equity

How Lenders Use Equity for HELOCs and Home Equity Loans

Lenders don't allow you to borrow against 100% of your equity. Instead, they use a metric called Loan-to-Value (LTV) or, for homes with multiple loans, Combined Loan-to-Value (CLTV). LTV is calculated by dividing your total loan amount (including the new loan) by your home's market value. Most lenders have a maximum LTV, typically between 80% and 90%, meaning they want you to retain at least 10-20% equity in your home after the new loan.

To qualify for a HELOC or Home Equity Loan, a lender will calculate your eligible borrowing amount based on this maximum LTV. For example, if your home is worth $400,000 and you owe $200,000, you have $200,000 in equity. If the lender's maximum LTV is 80%, they would lend up to 80% of $400,000 ($320,000). Since you already owe $200,000, your maximum new loan amount would be $120,000 ($320,000 - $200,000).

Beyond equity, lenders also review your financial health, including your credit score, debt-to-income (DTI) ratio, and stable income. A strong credit history and a manageable DTI ratio signal your ability to repay the loan, which are crucial factors in approval and determining your interest rate.

Understanding your home equity and how lenders assess it is essential because it directly determines how much money you can access through a HELOC or Home Equity Loan. These loans can be powerful tools for funding large expenses like home renovations, college tuition, or debt consolidation, often at lower interest rates than unsecured loans. Knowing your equity empowers you to make informed decisions about leveraging this significant asset.

Can I get a HELOC or Home Equity Loan if I have less than 20% equity?

It's less common, as most lenders prefer an LTV of 80% or less. Some may offer options with a higher LTV, but these often come with stricter qualification requirements or higher interest rates.

Does the interest rate on my first mortgage affect my ability to get a HELOC?

Not directly, but your overall debt-to-income (DTI) ratio, which includes your first mortgage payment, is a key factor lenders consider for your ability to repay additional debt.

How often should I calculate my home equity?

It's a good idea to check your equity annually, especially if you've been making extra mortgage payments or if property values in your area have changed significantly. You'll definitely want an updated calculation before applying for any equity-based loan.

Is it better to get an appraisal or a CMA to determine my home's value?

An appraisal provides the most accurate and official valuation, as it's conducted by a licensed professional. A CMA from a real estate agent offers a good estimate but isn't as formal as an appraisal. Lenders typically require an appraisal for loan approval.