Reference
Home equity glossary
21 terms you will meet between the first call and funding, defined without jargon.
Combined loan-to-value (CLTV)
- All loans secured by a property divided by its value. It sets the ceiling on how much equity you can borrow against.
Second lien
- A loan secured by a property that already has a first mortgage, sitting behind it in priority. A HELOC taken alongside an existing mortgage is a second lien.
Lien position
- The order in which claims against a property are paid if it’s sold. A HELOC is in second position behind an existing first mortgage, or in first position on a home owned free and clear.
First-position HELOC
- A HELOC recorded as the first lien on a home with no mortgage, such as one owned free and clear.
Debt-to-income ratio (DTI)
- Total monthly debt payments divided by gross monthly income. HELOC applications here allow up to 50%.
Debt payoff at closing
- Paying eligible debts, such as credit cards, personal loans, auto loans, home improvement loans or existing liens, directly from a new loan when it funds. The lender’s system determines which accounts on your credit report and title are eligible.
Payoff statement
- A lienholder’s written figure for the exact amount needed to pay a loan off on a given date.
Asset-based qualifying
- Using savings and investment accounts to support a loan application when income alone falls short.
Automated valuation model (AVM)
- A computer estimate of value built from property records and nearby sales. Fast, but unreliable on unusual homes.
Alternative valuation
- A valuation such as a broker price opinion, which may be used when an AVM value isn’t available or reliable enough. It includes a condition rating.
Adverse action notice
- The notice a lender must send when it declines an application, listing the principal reasons.
Seasoning
- A required waiting period after an event such as buying a home or being added to title. For a HELOC here it’s 90 days.
Origination fee
- A fee charged for making a loan, shown in the loan offer alongside recording costs and the APR.
Right of rescission
- A federal three-business-day right to cancel a loan secured by your primary residence. Funds can’t be sent until it ends.
Mello-Roos
- A Community Facilities District assessment on the property tax bill that funds infrastructure in newer developments. It counts as a housing cost when you qualify.
Stock cooperative
- Ownership of shares in a corporation that owns the building, with the right to occupy a unit. Not an eligible property type for a HELOC.
Reverse mortgage
- A loan for homeowners 62 and older that’s repaid when the home is sold or vacated. A home with one isn’t eligible for a HELOC.
Cash-out refinance
- Replacing your mortgage with a larger one and taking the difference in cash, which reprices the whole balance at current rates.
Equity
- The difference between your home’s market value and everything you owe against it.
Proposition 19
- California law narrowing the parent-child property tax exclusion, which can reassess an inherited home closer to market value.
ADU
- Accessory dwelling unit: a secondary residence on a single-family lot, such as a converted garage or backyard cottage.
Ask about a term that isn’t here
Definitions are general. What matters is how a term applies to your home and your application.
These are the requirements for the home equity line we place. Other lenders set their own guidelines, and some are more flexible.