HELOC for Home Improvements: How to Use Home Equity for Renovations
Your home may be sitting on six figures of untapped equity. A home equity line of credit lets you turn that equity into a new kitchen, a primary suite or an ADU — drawing funds stage by stage, paying interest only on what you actually use.
By Saman Khanian
Mortgage Professional
$20K+
Typical line
80–85%
Max combined LTV
10 yr
Draw period
Use equity you already have — without touching your first mortgage
A HELOC is a revolving credit line secured by your home’s equity, sitting behind your first mortgage. You draw as you need funds during a draw period (usually 10 years), then repay over 10–20 years. Because interest is charged only on the outstanding balance, a staged renovation costs far less to finance than a lump-sum loan.
Compared with a cash-out refinance, a HELOC keeps your existing low-rate first mortgage untouched and avoids restarting the loan term. Compared with a contractor’s financing or store credit card, HELOC rates are typically dramatically lower.
The catch: you need equity to spare (combined loan-to-value of 80–85% or less), verifiable income and a reasonable credit profile. And HELOC rates are variable, so budget for payments to rise.
How much of your home equity can you actually use?
Equity is what your home is worth minus what you owe. A lender only lets you borrow against the portion of it above a required cushion.
Worked example
- $800,000
Home appraised value
What your home is worth today, based on an appraisal or automated valuation model the lender accepts.
- − $380,000
First mortgage balance
What you still owe on your existing loan — your HELOC sits behind it.
- = $420,000
Equity in your home
Value minus what you owe. This is the pool renovation funds come from.
- $260,000
Borrowable at 80% combined LTV
A line is typically capped at 80–85% of value in total — first mortgage plus HELOC.
What lenders review
- Combined LTV — first mortgage plus new line, usually ≤ 80–85%
- Credit score — most programs want 680+, best pricing 740+
- Debt-to-income, counting the HELOC’s minimum or fully drawn payment
- Documented income — W-2, tax returns, or bank statements for self-employed
- Property condition — condos and non-warrantable buildings get extra review
Appraisal tip for renovations
Lenders value the home as it is today, not after the remodel. If the project is large, consider closing the HELOC first and refinancing later — or asking about renovation programs that use the “as-completed” value.
Get your real borrowing limit — no cost, no obligation.
APPLY NOWDoes your equity cover the project?
Move the sliders to see how much you could borrow and whether the renovation fits inside your line.
Default assumptions: 80% combined LTV. Actual limits depend on appraisal, credit, income and lender guidelines.
Estimated HELOC limit
$280,000
Project budgets at 58% combined LTV after the draw
Plan fits inside your line
You would have $190,000 of headroom left over — exactly the cushion you want for change orders.
Estimate only · not a commitment to lend
Common home improvements and what homeowners borrow
Ranges reflect typical Southern California project costs. Switch between a typical budget and premium finishes to see the spread.
Kitchen remodel
$35,000 starting
Value recouped: 60–80%
Mid-range cabinets, counters and appliances recoup a solid share at resale.
Bathroom update
$12,000 starting
Value recouped: 55–70%
The most consistent-return project; a basic refresh costs far less than a full gut.
Room addition / primary suite
$90,000 starting
Value recouped: 50–70%
Adds square footage — the strongest value driver, but staging and permits matter.
ADU (granny flat)
$150,000 starting
Value recouped: Rental income
ADUs in Los Angeles are a rent-producing asset; some rent income can count toward qualification.
Roof / HVAC / windows
$8,000 starting
Value recouped: Protects value
Not glamorous, but deferred maintenance costs more the longer it waits.
Solar & energy upgrades
$12,000 starting
Value recouped: Lower bills
Cuts monthly utility costs — and federal incentives may still apply.
Cost ranges are estimates for planning only and vary by scope, materials and location.
How to turn home equity into renovations — step by step
Most Equitable Lending clients go from first call to an open credit line in under four weeks. The faster you have your documents ready, the faster you can start the work.
Get the numbers before the contractor starts — not after.
- 01
Scope the project and get numbers
1–2 weeksCollect contractor estimates before you apply. Lenders don’t require a bid for a HELOC, but knowing your target — plus a 10–20% contingency — tells you how large a line you need.
- 02
Check your equity and credit
A dayAdd your first mortgage balance to the line you want. If the total is within 80–85% of the home’s value, you are likely in range. Pull your credit report and fix any errors early.
- 03
Apply and get pre-approved
1–3 daysA full application takes minutes online or by phone. We review income, assets, credit and the property; an appraisal may be ordered depending on the lender.
- 04
Underwriting and closing
2–5 weeksThe underwriter verifies everything and issues a clear-to-close. You sign, the line is opened — many lenders give you immediate or three-day access to draw.
- 05
Draw, build, and repay by stage
During constructionUse a check, debit card or transfer to draw as stages complete. Pay the contractor after work is verified; interest accrues only on what you’ve drawn.
Pay contractors by stage — not up front
Draw from the line as milestones complete. Interest is charged only on the balance you have used, which keeps a staged project cheap to carry.
Design & permits
Deposits for plans, permits and materials. Keep this small relative to the total.
Demo & rough-in
Demolition, framing, electrical and plumbing before inspections pass.
Finishes
Cabinetry, tile, flooring and fixtures — the largest share of most budgets.
Punch list
Hold the last 10% until the punch list is signed off. Never pay it early.
Budget a 10–20% contingency
Contracts rarely end at the estimate. Built-in overrun room prevents a mid-project scramble for more credit.
Borrow for the job, not the maximum
A line is a credit limit, not cash. Size it to the project plus contingency — only the drawn amount earns interest.
Plan for payment shock
At the end of the draw period the fully drawn balance switches to principal + interest over 10–20 years. Estimate that payment today.
Pick projects that protect value
Kitchens, baths and repairs protect equity. Ultra-tailored upgrades recoup less — improve the home you live in for how you live.
Verify the contractor first
In California, check the CSLB license, require bonds and written contracts, and never pay more than 10% up front.
Keep records for resale and taxes
Invoices and permits document your basis in the home and support the improvement (not personal) use test if you later claim interest.
Is HELOC interest on home improvements tax deductible?
Sometimes — and only on the portion used to buy, build or substantially improve the home that secures the loan. Under current federal rules, interest on home-acquisition debt (including a HELOC) can qualify as an itemized deduction, subject to debt limits and eligibility rules that change over time.
Funds used for personal expenses — debt consolidation, a vacation, or paying down other loans — generally do not qualify, even though the HELOC is secured by the house.
Practical tip: keep the renovation draws separate from other spending and retain invoices. A clean paper trail makes any deduction easier to support at tax time.
Tax law and your bracket are specific to your situation. Confirm with a qualified CPA or tax attorney before relying on any deduction.
HELOC vs. cash-out refinance vs. renovation loan vs. credit cards
For most homeowners funding a staged remodel, a HELOC is the lowest overall cost per borrowed dollar — but not always.
| Feature | HELOC | Cash-out refi | Renovation loan | Credit cards |
|---|---|---|---|---|
| Interest rate type | Usually variable | Fixed or adjustable | Fixed (often higher) | Fixed, often 20%+ |
| Keeps current low-rate 1st mortgage | Yes | No — replaces it | Yes | Yes |
| Draw only what you need | Yes — revolving | No — lump sum | Staged draws | Yes, per purchase |
| Closing costs | Low / often waived | Highest | Higher than HELOC | None |
| Typical timeline | 2–4 weeks | 3–6 weeks | 4–8 weeks | Same day |
| Best fit | Staged cosmetic upgrades | Lowering a high 1st rate too | Structural / value-driven | Small, short-term purchases only |
Many homeowners use a HELOC for interior upgrades and a cash-out refinance when lowering the first mortgage rate also makes sense. If the equity is thin, an FHA 203(k) or Fannie Mae HomeStyle renovation loan can be the right route — and we offer those as well.
Home improvement HELOC questions
Can I use a HELOC for home improvements and a renovation at the same time?
Yes. One HELOC can fund multiple projects — a kitchen this year and a roof next year — as long as the draws stay within your credit limit during the draw period. The line is revolving, so repaid principal becomes available to borrow again.
How much equity do I need to qualify for a HELOC in 2026?
Most lenders cap combined loan-to-value (first mortgage plus HELOC) at 80–85%. In practical terms, if your home is worth $800,000 and you owe $400,000, you can generally borrow up to $240,000–$280,000. Programs vary, and some allow higher CLTV at a price.
Is a HELOC a good way to pay for a kitchen remodel?
For many homeowners, yes. HELOC rates are typically far below credit card or contractor financing rates, you draw only what each stage costs, and you keep your low-rate first mortgage in place. The main risks are a variable rate and the need for adequate equity.
Can I pay a contractor with a HELOC?
Yes. You can draw funds and pay the contractor by check, transfer or debit card. Standard practice is to pay only for completed work — typically a small deposit, then milestone payments, holding 10% until the punch list is done.
What credit score do I need for a HELOC?
Many HELOC programs look for a score of 680 or above, with the best pricing at 740+. Some lenders accept lower scores with a higher combined LTV or rate adjustment. Income, debt-to-income and the property also matter.
Will renovating increase my home value immediately?
Not directly — a HELOC does not change your property value. The improvement itself may raise the appraisal value over time, which is why remodels that buyers value most (kitchens, baths, square footage, condition) are the strongest choices.
What happens when the HELOC draw period ends?
The line converts to a repayment period, usually 10–20 years. Many HELOCs allow interest-only payments during the draw period, then require principal and interest afterward, so your monthly payment will rise. Plan for that day from the start.
Can I use a HELOC on an investment property for renovations?
Some lenders permit HELOCs on investment properties, but terms are tighter — higher rates, lower maximum CLTV and fewer options. For a rental renovation, a DSCR or bridge loan may be a better fit, and we can compare all three for you.
Written by
Saman Khanian
Saman Khanian is a mortgage professional at Equitable Lending, a Los Angeles-based lender specializing in purchase, refinance, reverse mortgages and Non-QM programs, with deep expertise in HELOCs, second mortgages and home-equity financing for renovations. “Mortgages Made Easy.”
More about SamanReady to start your renovation?
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