First-Lien HELOC on Paid Off Home: How It Works in 2026

A first-lien HELOC on a paid-off home is a revolving line of credit that becomes the primary (and only) loan secured by your property. Because there’s no existing mortgage ahead of it, this type of HELOC typically comes with lower rates and more favorable terms than second-lien options.

For homeowners sitting on substantial equity, it’s one of the most flexible ways to access cash without locking into a traditional mortgage again. Below, we’ll cover how first-lien HELOCs work, what it takes to qualify, current rate expectations, and how to decide if this option fits your financial goals.

In this article (Skip to...)

• What is a first-lien HELOC?
• How a first-lien HELOC works when home is paid off
• First-lien HELOC vs. second-lien HELOC
• Requirements to qualify for a first-lien HELOC
• First-lien HELOC pros and cons
• First-lien HELOC alternatives
• FAQ

What is a first-lien HELOC?

A first-lien HELOC is a home equity line of credit that holds the primary claim on your property. “First lien” refers to the order lenders get repaid if you sell or face foreclosure—first position means first in line.

If you’ve paid off your mortgage, any new HELOC you take out automatically becomes a first-lien HELOC. There’s simply no other loan ahead of it.

Think of it like a large checking account tied to your home’s value. You can borrow what you need, pay it back, and borrow again - similar to a credit card, but typically at much lower interest rates because your home secures the debt.

How a first-lien HELOC works when your home is paid off

When you own your home free and clear, a first-lien HELOC lets you tap a significant portion of your property’s value as a revolving credit line. The loan has two main phases worth understanding before you apply.

Draw period

The HELOC draw period is your borrowing window, typically lasting 5 to 10 years. During this time, you can withdraw funds up to your credit limit whenever you want.

Most lenders require only interest payments during the draw period, which keeps monthly costs low. You can always pay down principal if you choose, but you’re not required to.

Repayment period

Once the draw period ends, you enter the HELOC repayment phase, usually 10 to 20 years. At this point, you can no longer access additional funds, and your payments now include both principal and interest.

This transition catches many borrowers off guard. Monthly payments can jump significantly, sometimes doubling or more, depending on your outstanding balance. Planning ahead for this shift is important.

Variable and fixed rate options

Most HELOCs carry variable interest rates tied to the Prime Rate. When the Prime Rate moves up or down, your rate and payment move with it.

Some lenders offer a fixed-rate conversion option, allowing you to lock in a set rate on all or part of your balance. This provides payment predictability, though it may come with a slightly higher rate or a conversion fee.

Why paid-off homes automatically get first lien position

Lien position is determined by recording order at your county recorder’s office. When you pay off your mortgage, that lien gets released. Any new loan you take out becomes the first (and only) lien recorded against your property.

This matters because lenders view first-lien positions as lower risk. If something goes wrong, they’re first to be repaid from sale proceeds. That reduced risk often translates to better rates and terms for you compared to second-lien HELOCs, where the lender sits behind an existing mortgage.

First-lien HELOC vs. second-lien HELOC

The key difference comes down to risk and cost. A first-lien HELOC typically offers more favorable terms because the lender has priority claim on the property.

First-lien HELOC rates

First-lien HELOC rates generally run lower than second-lien rates, often by 0.25% to 0.75% or more. The exact spread depends on the lender and your qualifications.

Rates are typically calculated as the Prime Rate plus a margin set by the lender. For example, if the Prime Rate is 8.50% and your margin is 0.50%, your rate would be 9.00%. Borrowers with excellent credit and substantial equity often qualify for the smallest margins.

Because rates vary significantly between lenders, comparing multiple offers makes a real difference. Even a quarter-point gap can save thousands over the life of your credit line.

Requirements to qualify for a first-lien HELOC

Qualifying for a first-lien HELOC involves several factors. While requirements vary by lender, here’s what most will look at.

Credit score minimums

Most lenders require a minimum HELOC credit score in the mid-600s, though 680 or higher is common for competitive rates. A score of 740 or above typically unlocks the best terms available.

Loan-to-value limits

Lenders cap how much you can borrow based on your home’s appraised value. Most allow up to 80% to 85% loan-to-value (LTV), though some go as high as 90%.

With a paid-off home, your starting LTV is 0%, meaning you have maximum borrowing potential. On a $400,000 home with an 80% LTV limit, you could access up to $320,000.

Income and employment verification

Expect to document your income with recent pay stubs, W-2s, tax returns, and bank statements. Lenders want confidence you can handle the payments, even if rates rise.

Debt-to-income ratio

Your debt-to-income (DTI) ratio compares your monthly debt payments to your gross monthly income. Most HELOC lenders prefer a DTI of 43% or lower, but you can always work on lowering it.

Paid-off homeowners often have an advantage here. Without a mortgage payment, your DTI is likely already quite low, which can make qualifying easier.

First-lien HELOC pros and cons

Like any financial product, a first-lien HELOC has trade-offs worth weighing carefully.

Pros

• Lower rates than second-lien HELOCs: First position means less lender risk and better pricing for you.
• Access to your full equity: Without an existing mortgage eating into available equity, you can tap a larger credit line.
• Flexible borrowing: Draw only what you need, when you need it, and pay interest only on what you use.
• Low initial payments: Interest-only payments during the draw period keep costs manageable.
• Potential tax benefits: Interest may be deductible if funds are used for home improvements (consult a tax professional).

Cons

• Variable rates can rise: If market rates increase, your payment increases too.
• Your home is collateral: Failure to repay could result in foreclosure.
• Temptation to overborrow: Easy access to funds requires discipline.
• Closing costs and fees: Appraisals, origination fees, and annual fees can add up.
• Payment shock risk: The jump from interest-only to full payments can strain budgets if you’re not prepared.

How to apply for a first-lien HELOC

The application process typically takes two to six weeks from start to funding. Here’s what to expect at each step.

1. Check your home equity and credit

Start by estimating your home’s current value using online tools like Zillow or Redfin. Then review your credit report for errors—you can access free reports at AnnualCreditReport.com.

2. Compare first-lien HELOC lenders

Gather quotes from multiple lenders, paying attention to interest rates, margins, fees, draw period length, and LTV limits. The Mortgage Reports can help connect you with lenders to streamline this process.

3. Gather required documents

Most lenders will ask for:

• Government-issued ID
• Proof of homeownership (deed or title)
• Recent pay stubs and W-2s
• Two years of tax returns
• Bank statements
• Homeowners insurance declaration page

4. Submit your application

Many lenders offer online applications that take 15 to 30 minutes. You’ll typically receive an initial decision within a few business days.

5. Complete the home appraisal

Your lender will order an appraisal to confirm your home’s value. Some lenders use automated valuation models (AVMs) for faster processing, while others require a full in-person appraisal.

6. Close and access your credit line

At closing, you’ll sign final documents and pay any closing costs. After closing, most states require a three-day “right of rescission” period before you can access funds.

First-lien HELOC alternatives

A first-lien HELOC isn’t the only way to tap your home equity. Here are other options worth considering.

Cash-out refinance

A cash-out refinance creates a new mortgage on your paid-off home, giving you a lump sum at closing. You get a fixed rate and predictable payments, but you’re also taking on a traditional mortgage again with regular monthly payments.

Home equity loan

A home equity loan provides a one-time lump sum at a fixed rate with set monthly payments. It’s less flexible than a HELOC but offers payment certainty from day one—a good fit for large, one-time expenses with a known cost.

Reverse mortgage

Available to homeowners 62 and older, a reverse mortgage converts equity into income without requiring monthly payments. The loan comes due when you sell, move out permanently, or pass away.

Personal loan

Personal loans don’t use your home as collateral, which means less risk to your property. However, rates are typically higher and loan amounts smaller than home equity products.

Is a first-lien HELOC right for you

A first-lien HELOC works well if you want flexible access to equity, can manage variable-rate risk, and have ongoing or unpredictable funding needs—like phased home renovations or a financial safety net.

It may not be the best fit if you prefer fixed, predictable payments, need a single lump sum for a defined expense, or feel uncomfortable using your home as loan collateral.

FAQs about first-lien HELOCs on paid-off homes