Using your equity can be powerful, but it puts your home on the line. So it pays to understand your options before you borrow.
Home equity is your home's value minus what you owe. You can tap it three main ways: a HELOC (a flexible credit line), a home equity loan (a fixed lump sum), or a cash-out refinance (a new, larger first mortgage). In California, lenders usually let you borrow up to a combined 80%–90% of your home's value, depending on the option, your credit, and the lender.
What this means
Imagine your home is worth $800,000 and you owe $400,000. Your equity is about $400,000.
Lenders will not let you borrow all of it — they keep a cushion. But you can often access a large part of it. The question is how you want to borrow:
- A reusable line of credit (HELOC).
- A one-time fixed lump sum (home equity loan).
- A whole new, larger mortgage (cash-out refinance).
How it works (the three options)
| Option | Structure | Rate | Keeps your first mortgage? | See |
|---|---|---|---|---|
| HELOC | Flexible, reusable line | Usually variable | Yes | HELOC |
| Home Equity Loan | One-time lump sum | Fixed | Yes | Home Equity Loan (Second Mortgage) |
| Cash-Out Refinance | New, larger first mortgage | Fixed or ARM | No (replaces it) | Cash-Out Refinance |
Which one fits your goal?
- Flexible or ongoing costs (like a staged remodel)? A HELOC. See HELOC.
- A one-time, known cost? A home equity loan. See Home Equity Loan (Second Mortgage).
- Want one payment and possibly better terms? A cash-out refinance. See Cash-Out Refinance.
- Have a very low first-mortgage rate you want to keep? A HELOC or home equity loan keeps it; a cash-out refinance replaces it.
Common uses
- Home improvements that add lasting value.
- Consolidating higher-rate debt into a lower-rate option.
- Big one-time expenses with a clear plan to repay.
Requirements (at a glance)
| Requirement | Typical home-equity rule |
|---|---|
| Equity | Usually keep 10%–20% in the home |
| Combined loan-to-value | Often up to 80%–90% |
| Credit score | Often 680+ (varies) |
| Income | Must show ability to repay |
| Property | Usually your primary home |
Benefits
Things to watch (honest notes)
What it looks like in practice
Example is for learning only. Your options depend on your equity, credit, and lender.
Common mistakes
This page is for education only. It is not a loan offer or a promise of approval, rates, or terms. Terms vary by lender, and qualification depends on your individual circumstances. Equal Housing Opportunity · NMLS #362311 · CA DRE #01871814.
