Home Equity Loan Costs and Caps for a Paid-Off Home

The Quick Read: A paid-off home removes the existing-lien subtraction but not the cap, so the combined loan-to-value ceiling for your occupancy type, the line-size limit, and your credit profile decide how much you can borrow, while fees and the share drawn at closing decide what it costs. The ceiling depends heavily on how the property is used. A rental sits in a lower tier than a primary residence. Every figure below is subject to lender guidelines and full file review.

• Investment property: the network ceiling is 70% combined loan-to-value (CLTV), up to a $500,000 line, with a 700 minimum credit score.
• Primary residence and second home: ceilings reach 90% CLTV, but only at a 720-or-better credit profile and up to $500,000.
• Title: the borrower must hold title personally or in a revocable living trust. An LLC cannot hold title on these lines.
• Cost driver: at least 75% of the line is drawn at closing, so interest starts on most of the line right away.
• Alternative: an investor with a paid-off rental held in an LLC usually looks at a DSCR cash-out refinance instead.

What a Paid-Off Home Changes (and What It Doesn’t)

A paid-off home gives you the full cap with nothing subtracted. The standard formula is value times the CLTV cap, minus existing liens. With no lien, the second half is zero.

That sounds like unlimited room. It isn’t. The cap still applies, and so do the line-size limit, the credit tier, and the debt-to-income test.

One naming point matters here. The product Lendmire’s wholesale network places is a standalone line of credit. It can sit in first or second lien position. On a paid-off property it sits in first position. It is sold as home equity, but it behaves like a first mortgage on the property.

Most home equity products are personal-credit loans. The lender looks at your income, your debts, and your credit, not at the rent the property earns. That is the sharpest difference from a DSCR loan, which qualifies primarily on property-level rental income covering the payment, subject to lender guidelines.

How Does the Cap Work on a Home With No Mortgage?

The cap is set by occupancy and credit tier, then limited again by the maximum line size. Lenders in the wholesale network Lendmire works with set lower ceilings for rentals than for owner-occupied homes. Higher credit scores unlock higher ceilings.

Here is how to read the table.

1. Find your occupancy. A rental is an investment property. The ceiling is 70% CLTV at both the 720+ and 700+ tiers. There is no tier above it.

2. Apply the credit tier. On a primary residence, a 720+ profile reaches 90% CLTV up to $500,000. A 700+ profile reaches 85% up to $500,000. Lower tiers step down. At 640 the ceiling is 80%, and at 600 it is 60%.

3. Apply the line limit. On a higher-value home, the line limit often binds before the percentage does. The 70% ceiling on a high-value rental can exceed $500,000 on paper, but the line stops at $500,000.

4. Check the larger-line rule. A line above $500,000 is for primary residences only. It caps at 75% CLTV and requires a full appraisal.

Other market sources report CLTV caps in the 80% to 85% range for home equity lending generally. That describes the broader market. On this network, an investment line tops out at 70%, and 90% exists only for owner-occupied or second-home collateral at 720 or better.

What Else Limits the Amount

The cap is the ceiling, but other tests can bind first.

Debt-to-income. The maximum is 50%. For credit profiles from 600 to 679 it is 45%. A ratio above 45% requires at least a 680 score. The test uses the interest-only payment calculated on the maximum draw, not the amount you plan to use. A large line can fail DTI even when the cap allows it.

Credit. The program floor is 600, but second homes floor at 640 and investment properties at 700. The score model is single-bureau and keys to the primary wage earner. The credit report can be no more than 90 days old at closing, and rescores are not available.

Derogatory history. A bankruptcy needs four years of seasoning from discharge or dismissal. On investment files, a foreclosure needs seven years, and a deed-in-lieu, pre-foreclosure, or short sale needs four.

Exposure. A borrower is limited to three lines. A borrower with more than 15 financed properties is not eligible. Investors with a large portfolio hit this wall before they hit any cap.

Valuation. Lines at or below $500,000 ordinarily use an automated valuation with no traditional appraisal, though a higher CLTV may call for a second valuation. A full appraisal is required on every line above $500,000, and a borrower may request one in any case. This is a real cost difference. On smaller lines the appraisal fee may not appear at all.

What Will You Pay?

Costs come in three layers: up-front fees, ongoing fees, and the interest on what you draw. Lenders in the network differ on which fees they charge, so compare the full fee list, not one headline number.

The CFPB lists the fees a lender can charge on a HELOC:

• an application fee
• origination, appraisal, and title fees at account opening
• an inactivity fee
• an annual or membership fee
• a cancellation fee, usually in the first two or three years
• a conversion fee, if you lock part of the balance at a fixed rate

The CFPB’s HELOC booklet also covers points. One point equals 1% of the loan amount. Rolling points into the loan raises the loan amount and the total cost.

A HELOC’s APR reflects interest only. It leaves out points and other financing charges, so total fees tell you more than APR alone.

Three structural features drive cost on the network’s lines.

• The 75% draw rule. At least 75% of the line is drawn at closing. You cannot open a large line and leave it idle. Interest runs on most of it from the start.
• Floating pricing. Pricing floats through both the draw period and the repayment period. It never converts to a fixed payment. A loan with a fixed lump sum and fixed payments is a different product.
• The draw structure. Primary residences and second homes can choose a 3-year interest-only draw with a 17-year repayment period, or a 5-year draw with a 25-year repayment period. Tennessee shortens both. Investment lines use the 5-year draw and 25-year repayment structure only.

Interest-only payments during the draw do not reduce principal. When repayment begins, the payment changes. Plan for that step before you draw.

After closing, the minimum subsequent draw is $1,000 on the longer-runway structure, and $4,000 in Texas. The higher-leverage structure does not state a subsequent-draw minimum. Fee amounts themselves vary by lender and are not a fixed network figure.

Where the General Rule Breaks

LLC title. This is the most common failure on rental files. Only an individual or an inter vivos revocable living trust can hold title. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot. A property already deeded to an LLC needs a vesting change or a different product. DSCR loans can be made to LLC-titled entities, subject to lender program eligibility. For an LLC-held rental, that is usually the cleaner route. Moving title just to qualify for a line can create its own problems, so run it past your attorney first.

Texas. A Texas primary residence is a homestead. It caps at 80% combined loan-to-value, and the matrix tiers above that figure never apply. A 12-day waiting period, a one-lien-at-a-time rule, and 12-month seasoning also bind primary residences. Texas second homes and investment properties are non-homestead transactions and follow their standard tables. Texas properties are limited to 10 acres.

Other state rules. New Mexico and Ohio apply a CLTV cap that depends on the credit profile. A property listed for sale, or listed within the past 60 days, is ineligible in Indiana, North Carolina, Pennsylvania, Tennessee, Texas, and Washington. These lines are available only in Lendmire’s 16 full-service states: AL, CA, CO, FL, GA, IN, MI, MT, NM, NC, OH, PA, TN, TX, VA, and WA. That is narrower than the 41-market DSCR footprint.

Property type. Eligible types include single-family, 2-4 units, PUDs, townhomes, and condominiums, including non-warrantable condos. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural-zoned properties are not offered. Modular factory-built homes are eligible on the longer-runway structure only.

Small lines. The line floor is $25,000, or $10,000 in Michigan. Flat fees weigh more on a small line. Percentage-based fees scale with the amount. A small draw against a large cap costs more per dollar borrowed.

Early closure. Cancellation fees usually apply in the first two or three years, per the CFPB list above. A lender that waives up-front costs may recapture them if you close the account early. Ask for that term in writing.

What the Investor Decision Looks Like

Start with title and occupancy, then work outward.

1. Confirm how the property is titled. If an LLC holds it, a line is off the table until title changes.

2. Confirm the ceiling for the occupancy. A rental gets 70% CLTV. Do not plan around the 90% figure, which belongs to owner-occupied and second-home collateral at 720-plus.

3. Check DTI on the maximum draw. Count every financed property. Exposure and property-count limits add up fast for a portfolio investor.

4. Compare total cost. Add the up-front fees, the ongoing fees, the points, and the early-closure terms. Then compare the structure.

5. Run the alternative. A DSCR cash-out refinance replaces the first mortgage rather than adding a lien. On standard rentals, most programs in the network top out around 75% LTV, with about 6 months of seasoning as the common expectation. That figure is a ceiling for standard rentals only. Short-term-rental collateral is a different tier, and 70% is the cash-out ceiling there.

Lendmire’s complete DSCR loans guide covers how that product works. For a side-by-side of the three paths, Lendmire’s piece HELOC vs Home Equity Loan vs Cash-Out Refi on a Paid-Off Home goes line by line. If the line cap is your question, Lendmire’s piece How Required Equity Caps a HELOC Line on a Paid-Off Home goes deeper.

DSCR compares rent to the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues. Clearing 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. A ratio above 1.00 does not mean positive cash flow, because repairs, vacancy, management, utilities, and capex sit outside the calculation.

The funds also carry strategy risk. A BiggerPockets podcast transcript cautions that using a line for a down payment, outside a plan to return the capital, leaves you with two loans. Size the new property’s coverage so it can carry its own debt.

Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.

On operator experience: the files that stall are rarely the cap math. They are title vesting, DTI run on the maximum draw, and listing status on the property. Check those three first, before ordering anything.

Key Terms Defined

Combined loan-to-value (CLTV): total debt secured by the property divided by its appraised value, including the new line.

Standalone line: a revolving credit line that is not tied to an existing mortgage and can sit in first or second lien position.

Draw period: the opening stretch in which you pay interest only on the balance.

Repayment period: the later stretch in which the balance amortizes with principal and interest.

Vesting: how title is held, such as an individual, a revocable living trust, or an LLC.

DSCR: the debt service coverage ratio, which compares a property’s rent to its monthly payment obligation.

If you are considering a home equity line and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals. Lendmire is a mortgage broker arranging financing through select lenders in its wholesale network. Programs change, and every file is underwritten individually.

About Lendmire

Lendmire (NMLS# 2371349) is a mortgage broker. Home equity lines of credit — on a primary residence, a second home or an investment property — are arranged through wholesale lenders in Lendmire’s 16 full-service states, and every line is underwritten by the lender under its program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB – What fees can my lender charge if I take out a HELOC?

2. CFPB – HELOC booklet

3. BiggerPockets – Real Estate podcast transcript