Depending on how healthy your credit is, a lender may want to see your LTV at less than 80%, but in some cases they may go up to 95%.
You must meet certain requirements before you're approved for a home equity line of credit (HELOC). And it depends on whether you want a HELOC or a home equity loan because they are distinctly different.
Most people qualify for a home equity loan or HELOC if they have a history of paying their bills on time and their credit score is at least 620.
You must also have a professional home appraisal done, and have at least 20% equity in the property.
Lastly, depending on which lender you choose, your debt-to-income ratio must be between 36% and 50%.
To give you a better idea of the concept, let's assume the market value of your home comes in at $500,000. If you have a mortgage balance of $225,000 the equity in your home works out to $275,000. (500,000 - 225,000 = 275,000)
= $225,000 (the mortgage balance) / $500,000 (value of the home) x 100
= 0.45 x 100
That means you are currently sitting at 45% LTV.
Lenders who allow a loan-to-value ratio up to 75% would most likely lend you between $35,000 and $150,000. However, it also varies depending on which state you live in.
= 500,000 / 0.75 - 225,000
= 375,000 - 225,000