Can I Increase My HELOC Limit?

When your finances change for any reason, you might wonder can I increase my HELOC limit? You might be able to; you’ll just need to refinance your HELOC or apply for a new one. In rare instances, some lenders offer the opportunity to increase your HELOC without refinancing or reapplying for the loan. Learn the eligibility requirements and process for adjusting your HELOC limit. 

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Understanding How You Can Increase Your HELOC Limit

As your home appreciates, you’ll gain equity in it. As such, you can increase your HELOC limit. Home improvements can also help make the home more valuable, thereby increasing the amount of equity in the home.

During the application process, your lender will review your home’s value and the amount of equity in your home. They’ll look at several personal financial factors, including debt-to-income (DTI) ratio to see what they are willing to lend you.

If you had maxed out your HELOC limit and your home has not appreciated or has depreciated, you likely won't qualify for an increase. If your credit score is now lower or you’ve taken on additional debt, you also might not qualify for the increase. 

How to be Eligible for a HELOC Limit Increase

Learn the qualification requirements to increase your HELOC limit before going through the process of applying for a new HELOC or refinancing.

Sufficient Home Equity

To increase your HELOC limit, you must have sufficient equity in your home. That means that the home is worth more than what you owe on it. If you have a mortgage, you’ll deduct that and your current HELOC from the fair market value of your home today to see whether there is additional equity you can tap into.

Reduced the Amount Owed on Your Mortgage

As you pay for your mortgage, you’ll increase the equity you have in the home. Most lenders only provide a HELOC that is equal to 80% of the home’s value, less the mortgage balance. So if you’ve paid down your mortgage significantly since acquiring your first HELOC loan, you can now increase that limit. 

Low Debt-to-Income Ratio

Lenders use a mathematical equation to determine whether you are a potential borrower. They’ll review your income and your existing debt. You want your debt to be a small portion of your total income to ensure a low DTI ratio. When your debt is close to your income, you’ll struggle to qualify for a HELOC limit increase.

Proof of Income and Financial Stability

Lenders want to know that you can repay your loan. You’ll need proof of steady income and overall financial stability to qualify for a HELOC limit increase. You need to have sufficient income to cover the loan and its repayment.

How to Increase Your HELOC Limit

When you first apply for a HELOC, the lender will approve you for a specific dollar amount for a specific term. But if those funds become insufficient, you can use one of these tactics to increase your HELOC limit.

Loan Modification 

Modifying your existing HELOC is one of the easiest ways to increase the limit. You can negotiate the terms of your existing loan. The terms might adjust your interest rates, repayment or just the cash that you receive from the loan. During this process, your lender will evaluate your home’s fair market value as well as your credit score and ability to repay the increased loan amount.

This is a wise choice if you have liked working with the lender you have and it is willing to complete the modification without putting you through a refinance or reapplication process. Additionally, a loan modification is ideal if your existing HELOC has lower interest rates than what is available today.

Apply for a New HELOC

Deciding to increase your HELOC limit offers an opportunity to shop around for better terms than you might have now. You can apply with various lenders to see who might provide the most favorable terms. In these cases, you might keep the HELOC you currently have and open a new line of credit for an additional HELOC with another lender.

When applying for a new HELOC, you can get it to replace your existing loan or get it in addition to your existing loan. It depends on the terms that you have with your existing lender and whether you want to keep that or bundle it all into one loan.

Refinance Your Current HELOC

You can approach your existing HELOC lender for a refinance. During this process, request a larger HELOC with new terms and conditions. This process will also adjust the repayment deadline. 

During this process, your interest rate will also change to be in line with today’s rates. That can be good or bad for you depending on the rates you secured when you first applied for your loan. If the rates are higher, consider applying for a new loan and retaining your existing HELOC to avoid increasing your overall interest rates.

Pros and Cons of Adjusting Your HELOC Limit

Adjusting your HELOC can provide many great benefits. But it also has some drawbacks. Make sure you’re aware of both before making the change.

Pros

• More funds: You’ll increase your access to funds, which you can use to go back to school, pay unexpected medical bills, pay down high-interest debt or purchase an investment property. In the right scenario, this additional money can help you achieve a better financial position overall.
• Increased home value: When you take a HELOC to improve your home, you can increase its value with the right improvements. That will improve the equity within your home. Some common improvements that help increase property value include replacing the roof or windows on the home.
• Lower interest rates: If you’ve found yourself in a situation where you’ve acquired credit card debt, you can secure lower interest rates with a HELOC. Credit card debt interest rates are around 27%. But a HELOC rate is a fraction of that.
• Improved financial positioning: While taking on debt doesn’t seem like the way to get into a better financial position on the surface, it can be a wise financial move. For example, you might use HELOC funds to purchase a franchise or start a business. This can be a wise move when you don’t qualify for a business loan yet or the interest rates are higher than they are for a HELOC.

Cons

• Fees: The cost of a HELOC doesn’t just come from the interest that you pay throughout the loan. You’ll also need to be ready to pay loan origination fees, a home appraisal and loan processing fees. Factor that into the total cost of the loan when evaluating whether this is a wise move for you.
• Changes in interest rates: When you increase your HELOC, you could face higher interest rates. The lender might view you as a riskier borrower because you now have little equity in your home and a greater debt-to-income ratio. The lender has to accommodate for that additional risk by charging greater interest.
• Risk of owing more than your home is worth: If your home depreciates, you could owe more on your various loans than the home is worth. In those scenarios, if you were to sell, you’d still have to keep paying on the outstanding loan that the home sale doesn’t pay off. 

Find the Best HELOC Lenders from Benzinga’s Top Providers

As you explore your options for increasing your HELOC, look into these leading providers that help you get the best rates and favorable terms.

Using Your Home’s Equity Strategically

You can put your home’s equity to work for you using a home equity line of credit. This strategic move can help you pay down higher-interest debt, fund the starting of a business or complete home improvements that increase the value of your home and more. 

Frequently Asked Questions