Can you get a HELOC while on Social Security?

It makes sense, given today's housing market, for homeowners to explore ways to leverage the equity in their homes to manage expenses, consolidate debt or fund large purchases. After all, the average homeowner has well over $300,000 worth of home equity built up in their homes, and a home equity line of credit (HELOC) —which functions as a line of credit tied to that equity that can be drawn from multiple times — is a popular choice, offering flexible access to those funds. Add in the other benefits of a HELOC in today's economy, like their variable-rate nature, and it's easy to see why many homeowners opt for a HELOC over a home equity loan or a cash-out refinance right now.

For retirees or those relying on Social Security as their primary income source, however, securing a HELOC may seem daunting. Lenders typically evaluate income and debt-to-income (DTI) ratios to determine eligibility and Social Security benefits might not seem sufficient to qualify. But many retirees have significant equity that could potentially be accessed to supplement their retirement income, cover unexpected expenses or fund home improvements, so it's important to understand whether tapping into that equity is possible while on Social Security.

So is it possible to take out a HELOC if you're on Social Security — or does it disqualify you from obtaining this type of home equity funding? Below, we'll detail what you should know if you're retired, on Social Security and want to borrow from your home's equity with a HELOC.

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Can you get a HELOC while on Social Security?

The short answer is yes, you can qualify for a HELOC while on Social Security, but the approval process may vary depending on your financial circumstances. Lenders assess applications based on several key factors, including:

• Income: Social Security benefits are considered a legitimate and reliable source of income. If your monthly Social Security payments meet the lender's minimum income requirements, they can be factored into your application. Additionally, other income sources, such as pensions, annuities or rental income, can strengthen your case.
• Debt-to-income (DTI) ratio: Lenders evaluate your ability to repay the HELOC by looking at your DTI ratio. This is the percentage of your monthly income that goes toward debt payments. Most lenders prefer a DTI ratio of 43% or lower, but some may allow higher ratios if you have substantial equity in your home or excellent credit.
• Credit score: Your credit score is an important factor in determining eligibility and interest rates. A strong credit score demonstrates your ability to manage debt responsibly, increasing your chances of approval.
• Home equity: The amount of equity you have in your home is another critical consideration. Most lenders require at least 15% to 20% equity to qualify for a HELOC, which they determine by calculating your home's value and subtracting the remaining mortgage balance.

If you meet these criteria, there's a good chance you can qualify for a HELOC, even if Social Security is your primary source of income. Be prepared to provide documentation, such as Social Security award letters, bank statements and proof of other income sources, during the application process.

Start comparing the home equity borrowing rates available to you here.

What other home equity borrowing options should I consider?

If a HELOC isn't the right fit for your needs, several other home equity borrowing options may be worth exploring. These include:

Home equity loans

A home equity loan is a lump-sum loan based on the equity in your home. Unlike a HELOC, which functions as a revolving line of credit, a home equity loan provides a fixed amount with a locked interest rate and repayment term. This option is ideal if you need a large sum upfront, such as for home renovations or medical expenses. For individuals on Social Security, the predictable monthly payments can be easier to manage.

Reverse mortgages

A reverse mortgage allows homeowners aged 62 or older to convert home equity into cash without monthly repayment obligations. Rather, the loan is repaid when the homeowner moves, sells the property or dies. This option can supplement retirement income and eliminate the need for monthly mortgage payments, though it may reduce the inheritance left to heirs.

Cash-out refinancing

With a cash-out refinance, you replace your existing mortgage with a new one for a higher amount and pocket the difference as cash. Depending on the rate environment, this option might offer lower interest rates than a HELOC or home equity loan, but it replaces your current mortgage loan with a new one, which may not be optimal if you secured a low rate at some point in the last few years. It also involves closing costs and resets your mortgage term. For retirees on Social Security, it's also important to consider whether extending mortgage payments into the future aligns with your financial plans.

The bottom line

Securing a HELOC while on Social Security is possible, but it requires careful planning and an understanding of lender requirements. By evaluating your income, DTI ratio, credit score and home equity, you can determine whether a HELOC is the best option for your financial situation. If not, alternative options like home equity loans, reverse mortgages or cash-out refinancing may provide the flexibility you need to meet your goals.