Core Concept - A home equity loan allows homeowners to borrow against the equity in their home, providing cash for various expenses such as renovations or tuition [1][2]. Home Equity Loan Overview - A home equity loan is classified as a second mortgage, enabling homeowners to maintain their primary mortgage while taking out an additional loan [1][16]. - Borrowers receive a lump-sum payment and repay it in fixed monthly payments over a term typically ranging from five to 30 years [2]. Borrowing Capacity - The amount that can be borrowed through a home equity loan is influenced by the home's value, loan-to-value (LTV) ratio, and combined loan-to-value (CLTV) ratio [3][6]. - Lenders usually require an appraisal to determine the current market value of the home before calculating LTV and CLTV ratios [3]. Loan-to-Value Ratio (LTV) - LTV is calculated by comparing the mortgage balance to the home's current market value, expressed as a percentage [4]. - For example, if a home is valued at $500,000 and the mortgage balance is $325,000, the LTV ratio is 65% [5]. Combined Loan-to-Value Ratio (CLTV) - CLTV considers both the primary mortgage and the home equity loan when determining borrowing capacity [7]. - For instance, if the primary mortgage is $325,000 and the homeowner wishes to borrow an additional $50,000, the CLTV would be 75% [8][10]. Borrowing Limits - Many lenders allow a maximum CLTV of up to 85%, meaning if the CLTV exceeds this threshold, borrowers may need to seek lenders with higher limits or reduce the loan amount [9]. - In a scenario where the primary mortgage is $240,000 and the home value is $320,000, the maximum amount that can be borrowed through a home equity loan would be $32,000, assuming an 85% CLTV [10][11]. Additional Factors Influencing Borrowing - Lenders assess several factors beyond LTV and CLTV, including credit score, income, debt-to-income (DTI) ratio, and home equity percentage [12][13]. - A minimum credit score of 680 is often required, and lenders typically expect at least 15% to 20% equity in the home for eligibility [13]. Minimum Loan Amounts - The minimum amount that can be borrowed varies by lender, with some requiring a minimum of $10,000 to $45,000 for home equity loans [14].