Yes, you can use a HELOC to buy a house. Homeowners commonly tap a home equity line of credit on their current property either to fund the down payment on a new home financed with a traditional mortgage, or to pull out enough cash to buy the next house outright. The catch worth understanding before you sign anything: the debt is secured by your existing home, not the new one, and the interest usually is not tax-deductible when the funds go toward a different property.
The Two Ways People Use a HELOC to Buy a Home
The choice comes down to how much equity you have and how much risk you want to concentrate on your current house.
Covering the Down Payment
The more common approach is a “piggyback” structure: you borrow 80 percent of the new home’s price through a first mortgage and use the HELOC to fund the remaining 20 percent. The main appeal is avoiding private mortgage insurance. Lenders require PMI when a borrower puts down less than 20 percent on a conventional mortgage, and the annual premium typically runs from about 0.58 to 1.86 percent of the loan amount.1Fannie Mae. What to Know About Private Mortgage Insurance On a $400,000 loan, that’s roughly $2,300 to $7,400 per year you don’t have to pay.
One thing many borrowers miss: once you draw from the HELOC, the required monthly payment on that balance counts as debt when the new mortgage lender calculates your debt-to-income ratio.2Fannie Mae. B3-6-05, Monthly Debt Obligations A $500 interest-only HELOC payment gets added to your existing debts and can push you above the lender’s threshold, shrinking how much mortgage you qualify for.
Lenders on the new mortgage will also verify where your down payment came from. Most want the funds seasoned in your account for 60 to 90 days before closing, so move HELOC money into your bank account well ahead of preapproval.
Making an All-Cash Offer
If you have enough equity, you can draw the entire purchase price and buy the new property outright. The purchased home has no mortgage lien on it, the title transfers cleanly, and you skip a second appraisal, extended underwriting, PMI, and origination charges on the new place. In a competitive market, a cash offer often wins because it closes faster and carries no financing contingency.
The trade-off is that the entire debt sits on your primary residence. If you can’t keep up with the payments, that’s the home the lender can foreclose on — not the one you just bought. You’re also carrying a large variable-rate balance, so rate increases hit you directly. Anyone using this approach should have a defined exit: refinancing the new property later, selling the original home, or paying down the line from income.
Whether You’ll Qualify
Three numbers decide most HELOC applications.
Equity. Lenders look at your combined loan-to-value ratio, which is the total of all loans secured by your home divided by its appraised value. Most require you to keep at least 15 to 20 percent equity after the HELOC, meaning your CLTV can’t exceed 80 to 85 percent. A homeowner with a $500,000 property and a $300,000 mortgage could access up to roughly $100,000 at an 80 percent cap. Some lenders offer lines up to $1 million for borrowers with substantial equity.
Credit and DTI. Most lenders want a credit score of at least 680. Scores below that bring higher rates, lower limits, or denial. On debt-to-income, expect a ceiling of roughly 43 to 50 percent of gross monthly income including the projected HELOC payment, depending on the underwriter and your compensating factors.
Reserves, if you’re buying a second home or rental. The mortgage lender on the new purchase will want cash reserves on top of the down payment. Fannie Mae guidelines call for at least two months of mortgage payments in reserve for a second home and six months for an investment property, with more required if you already own multiple financed properties.
What It Costs and How the Payments Change
HELOC interest rates are almost always variable. Most lenders calculate your rate by taking the current prime rate and adding a margin, so if prime is 7.50 percent and your margin is 2 percent, you’d pay 9.50 percent. That’s typically higher than a 30-year fixed mortgage. Some lenders let you convert all or part of your outstanding balance into a fixed-rate segment.
Closing costs generally run 2 to 5 percent of the credit line. Common charges include an origination fee (0.5 to 1 percent), title search, title insurance, document preparation, notary, and recording fees. Some lenders waive these on smaller lines but claw them back if you close the account within the first few years.
The bigger cost issue is the shift from draw to repayment. During the draw period, which typically lasts about 10 years, you can withdraw funds and usually pay only interest on the balance. When the draw period ends, the balance converts into a fixed repayment loan, typically over 20 years, and you start paying principal and interest each month. On a $150,000 balance, that transition alone can nearly double your monthly payment even if rates don’t move. Budget for the repayment-phase number, not the draw-phase one.
The Tax Catch on Interest Deductibility
Under current IRS rules, HELOC interest is deductible only if the borrowed money was used to buy, build, or substantially improve the home that secures the line of credit. If your HELOC is secured by your primary residence and you use the funds to buy a different property, the interest generally isn’t deductible as home mortgage interest. The IRS treats it as personal interest, which carries no deduction.3Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction
There is one potential exception. If the new property qualifies as an investment, such as a rental, the portion of HELOC interest allocable to that investment activity may be deductible as investment interest, subject to separate limits. Ask a tax professional how the rule applies to your situation.
The dollars matter. On a $200,000 HELOC balance at 9 percent, first-year interest is roughly $18,000. If none of it is deductible, you lose thousands in tax savings compared with a traditional mortgage where the purchase-loan interest would typically qualify.
Risks Worth Weighing Before You Sign
Your Primary Home Is on the Line
A HELOC is secured by your current residence. If you can’t make the payments, even though the money bought a different property, the lender can start foreclosure on your primary home. Your original mortgage has first priority, so the HELOC lender is paid from whatever’s left after the first mortgage. If a court judgment produces a remaining deficiency, wage garnishment or bank levies can follow.
Variable Rates and Payment Shock
Because the rate floats, your monthly cost climbs if rates rise. Combined with the draw-to-repayment shift described above, a borrower who planned around the low interest-only payment can find the new terms unaffordable.
Your Lender Can Freeze the Line
A lender can freeze or reduce your HELOC if your home’s value drops significantly or if it believes your finances have materially changed.4Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit If you were counting on additional draws for closing costs or repairs on the new property, a freeze can strand you at the worst possible moment. Housing downturns are exactly when this happens.
Debt on Two Properties at Once
Using a HELOC for a down payment plus a new mortgage on the second property means carrying debt on both homes at the same time. A job loss, a major repair, or a vacancy on a rental can cascade quickly. Run a budget that covers both mortgages plus taxes, insurance, and maintenance, with a real cushion, before moving forward.
How the Process Moves
From application to funding, a HELOC generally takes about 30 days, faster if you turn documents around quickly.5Consumer Financial Protection Bureau. 12 CFR 1026.40 – Requirements for Home Equity Plans Expect to provide two years of tax returns and W-2s, recent pay stubs, your current mortgage statement, a property tax assessment, and proof of homeowner’s insurance. Self-employed borrowers substitute business tax returns and profit-and-loss statements. Many lenders use an automated valuation or a drive-by inspection rather than a full interior appraisal; when a full appraisal is required it typically costs $300 to $500.
After closing, federal law gives you three business days to cancel the agreement, known as the right of rescission, and no funds can be disbursed until that period expires.6Consumer Financial Protection Bureau. 12 CFR 1026.23 – Right of Rescission Once it does, you can wire the funds or have a certified check sent directly to the title company handling the property purchase.7Consumer Financial Protection Bureau. How Long Do I Have to Rescind? When Does the Right of Rescission Start?