How to Open a HELOC While Living on a Severance Package

The Quick Read: Severance is time-limited pay with a known end date, so most lenders treat it as thin support for a credit line rather than durable income. Approval usually turns on what else you can document: other income, equity, credit, and existing debt. The cleanest path is to apply before the last paycheck, and the lender’s own policy decides how severance is counted.

• Severance has an end date, which weakens it as income. Lenders often look at it as cash on hand instead.
• Other documented income (retirement, investments, rental income, a spouse’s wages, a new-job offer) carries more weight than the severance itself.
• Applying while still employed is cleaner than applying after separation.
• An open line can be frozen or reduced after job loss, so it is not guaranteed liquidity.
• On a network placement, investment-property lines top out at 70% CLTV. Primary residences and second homes reach higher tiers with stronger credit.

Lendmire is a mortgage broker that arranges DSCR investor loans across 41 markets, including Washington, D.C. Home equity lines are a separate product. Lendmire places them only through select wholesale partners in its 16 full-service states, and the lender, not the broker, makes every approval decision. Everything below is subject to lender guidelines and full file review.

What Is a HELOC, and Why Does Severance Complicate It?

A HELOC is a revolving line secured by your home. You borrow against it repeatedly during a draw period, then repay. Severance complicates it because the underwriter has to decide whether pay that ends soon can support a debt that lasts for years.

The federal consumer-finance regulator explains that the draw period could last 10 years, for example, followed by a repayment period often lasting 10 or 20 years. Monthly payments are often significantly higher once repayment begins. That payment step-up matters more when your paycheck has already stopped.

A HELOC is underwritten to the person, not to the property the way a DSCR loan is. The lender looks at repayment ability, equity, credit, and existing debt. Federal rules do not set one formula for counting severance, so each lender’s credit policy decides.

How Do Lenders Actually Treat Severance?

Lenders generally treat severance as short-lived. It is a wage replacement with an end date, and underwriters want income they can expect to continue. A separation agreement showing a fixed end date is direct evidence that the pay will stop.

Here is how the review usually runs:

1. Read the severance terms. The underwriter sees whether it is a lump sum or salary continuation, and how many months remain.

2. Decide income versus asset. Some lenders ignore severance as income but accept the deposited cash as an asset or reserve.

3. Look for other durable income. Retirement distributions, investment income, documented rental income, and a co-borrower’s wages are weighed alongside it.

4. Check equity and credit. Strong equity and good credit help, but they do not replace repayment ability.

5. Apply the lender’s own policy. Two lenders can reach opposite answers on the same file.

Honest answer on remaining months: there is no standard number of months of severance a lender must see. It varies by lender, and some will not count it at all.

Where Are You in the Process?

Timing changes the file more than anything else. The table sorts the common situations.

Applying before separation is cleaner because the file shows current wages. Once the paycheck stops, the file leans entirely on other sources.

Which Severance Structure Do You Have?

The structure of the package changes how it reads in a file. A lump sum is cash you already hold, so a lender may view it as an asset in a verified account. Salary continuation pays out in installments, so only the portion already received is cash in hand. The rest is a promise with an end date.

Neither is likely to be treated like a salary that continues. Guidelines rarely name severance directly, and lender overlays differ. Ask the lender how it handles each structure before you spend on an appraisal or application fee.

What Documents Does the File Need?

Expect to document the whole picture, not only the package. A complete file usually includes:

• the separation or severance agreement
• your final pay stub
• bank statements showing the severance deposit
• proof of other income, such as leases, retirement statements, or investment statements
• a property valuation, which sets the size of the line
• a current credit report and a list of existing debts

Line size comes from your home’s value times the lender’s combined-LTV ceiling, minus what you owe. A missing agreement or an unexplained deposit is the kind of preventable gap that stalls a review.

What Do the Network’s HELOC Parameters Look Like?

Occupancy sets the ceiling, so the figure depends on the property. These are guidelines from select wholesale partners, not commitments.

The 90% ceiling exists only at a 720 profile. On a primary residence, 720+ reaches 90% CLTV on lines up to $500,000, while 700+ reaches 85%.

Other mechanics worth knowing:

• Line sizes run from $25,000 to $750,000, with at least 75% of the line drawn at closing.
• Debt-to-income tops out at 50%, and the line is qualified on the interest-only payment at the maximum draw. For credit from 600 to 679 the cap is 45%.
• Lines at or below $500,000 ordinarily use automated valuation, while larger lines need a full appraisal.
• Title must sit with an individual or a revocable living trust. An LLC cannot hold title on these lines.
• Manufactured homes, co-ops, condotels, and log homes are not eligible.

Some market surveys report combined leverage well above these figures for equity lines at lenders. Those describe the broader market, not this network. On an investment property, the network ceiling is 70% CLTV.

Draw structures come in two forms on primary residences and second homes: a 3-year interest-only draw with a 17-year repayment, or a 5-year draw with a 25-year repayment. Investment lines use the 5-year draw and 25-year repayment only. Pricing floats and does not convert to fixed.

Should You Open It Before You Leave the Job?

Yes, if you still can. A line opened while you are on payroll is documented on current wages. Once pay stops, the same application becomes much harder to support.

There is a catch. Opening the line is not the same as owning guaranteed access to cash. The Federal Reserve notes that lenders may reduce or freeze a line even when payments were made on time. Job loss is a classic trigger because it can be a material change in your finances.

A freeze is not a demand for repayment. The balance stays and you keep paying it. But an undrawn line is the part that can disappear. For that reason, do not build a recovery plan that depends on undrawn credit.

If you are bridging homes while a line is open, Lendmire’s piece How to Keep a HELOC Open Through a Refinance While Bridging Homes covers the sequencing.

What Can Go Wrong?

The risks are real, and the severance period raises them.

• Payment reset. Interest-only draws end, and the amortizing payment is often significantly higher. Plan for it before you borrow.
• Collateral. Your home secures the line. Missed payments put it at risk.
• Using equity for living costs. Borrowing against your home to cover ordinary expenses leaves less equity and no repayment source if the job search drags on.
• Fresh deposits. Large recent deposits draw questions. Document where every dollar came from.
• Lender-specific policy. Some lenders will not count severance at all.

This may not be the right move if you have no documented income besides severance, no clear re-employment path, and no plan to repay what you draw. Honestly, in that situation the stronger play can be to leave the line undrawn or skip it.

Severance can also affect unemployment benefits, and the rules vary by state. Tax treatment varies; consult a qualified professional.

Where Does the DSCR Side Come In?

If your equity is meant to fund a rental purchase, the two loans are underwritten differently. The HELOC looks at you. A DSCR loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. For how that works, see the complete DSCR loans guide.

Across the wholesale network, most DSCR purchases land at 75% to 80% LTV, with select programs reaching 85% at about a 700 score. Cash-out refinances top out near 75% LTV with about 6 months of seasoning common. Coverage of 1.00 is where select programs start, and a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. Reserves vary by lender, leverage, and loan size, commonly around 6 months of PITIA.

Two points matter for someone on severance:

• Whether borrowed HELOC funds can serve as a down payment is decided by the purchase lender’s guidelines. Many allow it, but it is lender-specific.
• Severance counts toward reserves only after it is paid, taxed, and sitting as net cash in your account. Funds used for down payment and closing cannot also count as reserves, and borrowed money does not fill a reserve gap.

Clearing 1.00 is not the same as positive cash flow. Repairs, vacancy, management, and utilities sit outside the calculation, so your own account covers any shortfall. If you already hold a line and are thinking about selling, Lendmire’s piece Can You Sell Your Home While a HELOC Is Open and Drawn? covers that exit.

Key Terms Defined

CLTV: Combined loan-to-value, the total of all loans against the home divided by its value.

Draw period: The stretch when you can borrow from the line, usually with interest-only payments.

Repayment period: The stretch after the draw ends, when the balance amortizes.

Salary continuation: Severance paid in installments on a payroll schedule instead of as one lump sum.

Freeze: A lender’s decision to stop new draws while leaving the existing balance in place.

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. Reach the team at 828-256-2183. Many severance files are decided less by the package than by how clean the rest of the documentation is.

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 Ask: What is a HELOC

2. Federal Reserve Board, “5 Tips” release