One thing that continues to work on behalf of many homeowners is the equity in their home. Residential real estate has appreciated significantly since 2020, and homeowners steadily paying down their mortgages have been accumulating equity even faster than in previous years.

Many homeowners could use the win, as the cost of other goods and services continues to fluctuate and bigger-ticket items, like new cars, insurance premiums, and renovation costs, are climbing nearly as fast as home prices.

Total HELOC Balances Increased 6.6% in 2023

As home values increase, more homeowners are leveraging some of that newly won wealth in the form of home equity lines of credit, or HELOCs. By borrowing some of the value of a home, homeowners are able to make home improvements or consolidate, pay down, or pay off higher-interest debts. In 2023, the average HELOC balance grew 2.7% to $42,139, and more than $20 billion was added to the total HELOC debt across all U.S. consumers.

Overall, HELOC debt nationwide increased by 6.6% in 2023, the second consecutive year that HELOC balances have grown.

What You’ll Need for a HELOC (Besides Equity)

A HELOC is a line of credit secured by the equity a homeowner has in a property. HELOC lenders allow homeowners to tap up to a certain percentage of the paid-off portion of their mortgage. For example, someone who has a home valued at $400,000 with $100,000 remaining on their mortgage may be able to tap up to 80% of that equity—$240,000—in the form of a HELOC.

Most homeowners don’t borrow all that they’re eligible for. Across the U.S., average HELOC limits range from $75,000 to $175,000. But homeowners usually borrow roughly one-third of their HELOC limit from those lines of credit, an amount that roughly mirrors the cost of major home renovations—between $19,000 and $85,000.

Would-be HELOC borrowers need to meet certain requirements before their line of credit can be approved. Lenders want to see that the borrower’s income is enough to cover their existing debts, including any borrowings from a HELOC. Lenders determine this by calculating the borrower’s debt-to-income ratio (DTI). Most lenders are looking for a DTI under a certain level (often 43%). Also, one’s credit history and credit score will also be considered, just as with a mortgage application.

HELOC Credit Limits Are up in 2023

The average credit limit for HELOCs in 2023 was $117,598, which is 1.7% higher than 2022’s average limit of $115,650. Based on the 2023 average HELOC balance of $42,139, homeowners with HELOC balances are collectively using about 36% of their lines of credit.

Younger Homeowners More Likely to Be Tapping Home Equity

Homeowners born in 1965 or later have higher average balances than baby boomers or the Silent Generation, whose balances are lower than they were in 2022. While household makeup explains much of the disparity in balances—younger homeowners who are building a family and updating their home to accommodate it versus older empty-nesters—there are other considerations.

According to Susan Allen, senior vice president of mortgage at Experian, HELOC usage is up in the past year among recent borrowers. “We are seeing HELOC line utilization, the amount drawn against the open line, increasing over the last 12 months,” Allen says. “Interestingly, 80% of consumers who originated their HELOC in the last two years have drawn on their lines, compared with only 62% of consumers with older HELOCs.”

HELOC Balances Climb in Most States

Average outstanding HELOC balances are higher in 45 states and the District of Columbia in 2023. Where balances increased the most, there’s no apparent throughline: Sparsely populated South Dakota, a pair of Southern states, and Hawaii have little in common other than sharply increasing HELOC balances. As for Colorado, homeowners there increased average balances by more than 10% for the second consecutive year. It’s a testament to the tight housing market in the state: There are fewer homes to choose from and homeowners are increasingly turning to renovation instead of trading up.

HELOCs in 2024: Almost Ready for Prime Time?

With consumer demand for credit not slowing down so far in 2024, why aren’t we seeing HELOC offers everywhere?

“Mortgage lenders have been investing heavily in streamlining the HELOC application process,” Allen says, citing examples such as AI-powered property valuations, as well as “consumer-permissioned income” and employment verification.

Allen cautions, however, that due to the larger loan amounts and the lien recording involved, borrowers may need to be a bit more patient than they would for a smaller-sized unsecured loan. In exchange for their patience, they’ll likely receive a loan rate significantly lower than they would for an unsecured loan. Once a HELOC is issued, she advises homeowners to be “very intentional about HELOC utilization” even as home prices continue to appreciate at historic rates.

“Nobody can predict when prices will level off,” she says. “So it is important to not assume that historical price increases will continue indefinitely.”

Contact O1ne Mortgage for Your HELOC Needs

At O1ne Mortgage, we understand the importance of leveraging your home equity to meet your financial goals. Whether you’re looking to make home improvements, consolidate debt, or simply have a financial safety net, our team of experts is here to help you navigate the HELOC process.

Call us today at 213-732-3074 to discuss your mortgage service needs. Our experienced loan officers are ready to provide you with personalized solutions and exceptional service.