Can You Use Your Current House as a Down Payment?

You can use your current house as a down payment on your next home in a few different ways: sell it and roll the proceeds into the new purchase, borrow against its equity with a home equity loan, HELOC, or cash-out refinance, take out a short-term bridge loan, or write a sale contingency into the new contract so the two deals move together. Every one of these approaches turns on the same number: your equity, meaning what the home is worth today minus what you still owe on it. Which route makes sense depends on how much equity you have, how fast your local market is moving, and whether you can afford to carry two housing payments if the timing slips.

Start With the Equity Math

Subtract your remaining mortgage balance from your home’s current market value. A home worth $400,000 with $220,000 left on the mortgage carries roughly $180,000 in equity. That’s the ceiling, not the usable amount. Sale costs, lender loan-to-value limits, and the equity a lender requires you to leave behind will all shrink it.

How much of it you actually need depends on the loan on the new house. Conventional loans go as low as 3% down for qualified first-time buyers with a credit score of at least 620. FHA loans require 3.5% down with a credit score of 580 or higher. Anything less than 20% down on a conventional loan means private mortgage insurance gets added to your monthly payment.¹ Knowing the down payment you’re aiming for tells you how much equity you actually need to pull out.

Sell First, Then Buy

Selling the old house before buying the new one is the cleanest version of this. You pay off the existing mortgage and closing costs at settlement, keep what’s left, and walk into the next purchase knowing exactly how much cash you have. No second mortgage, no bridge financing, no contingency in the offer.

The cost is timing. You may need somewhere to live between the two closings, and in a competitive market you can lose the house you want while you wait for your sale to close.

If you sell for a profit, the federal primary-residence exclusion usually keeps that gain out of tax. Single filers can exclude up to $250,000 of gain; married couples filing jointly can exclude up to $500,000, provided you owned and used the home as your primary residence for at least two of the five years before the sale.² Those two years don’t have to be consecutive; they just have to add up to 24 months inside that five-year window.³

Borrow Against the Equity: HELOC or Home Equity Loan

If you want to buy first and sell later, you can borrow against your current home. A home equity loan hands you a lump sum at closing, usually at a fixed rate. A home equity line of credit works more like a credit card: you draw what you need up to a limit, at a variable rate, during a draw period that runs several years before shifting into a repayment phase where you can no longer borrow.⁴⁵

Either way, the old house is the collateral, and the lender caps what you can borrow at a percentage of the appraised value minus what you still owe. Closing costs typically run 2% to 5% of the amount borrowed. You’ll carry the new debt on top of the existing mortgage until the house sells.

There’s a tax point worth understanding before you go this route. Interest on a HELOC or home equity loan is deductible only when the borrowed money is used to buy, build, or substantially improve the home that secures the loan. Pull a HELOC on House A to make the down payment on House B, and that interest is not deductible.⁶ The effective borrowing cost is higher than the rate alone suggests.

Cash-Out Refinance

A cash-out refinance replaces your current mortgage with a new, larger one and pays you the difference in cash.⁷ Owe $200,000 on a home appraised at $400,000, refinance into a $300,000 loan, and you walk away with about $100,000 less closing costs.

Conforming cash-out refinances on a single-unit primary residence are capped at 80% loan-to-value, so you have to leave at least 20% equity in the property once the new loan is in place.⁸ Cash-out rates typically run about a quarter to half a percentage point above standard refinance rates, and closing costs fall in the same 2% to 5% range. You’re also resetting the amortization clock on your mortgage, which means more total interest over the life of the loan if you end up keeping the home longer than planned.

Bridge Loan

A bridge loan is short-term financing that spans the gap between buying the new home and selling the old one. The lender advances a lump sum secured by the equity in your current property; you use it for the down payment and closing costs on the new purchase, then repay the bridge loan in full when the old house sells.

Most bridge loans run about 12 months. Rates sit meaningfully above standard mortgage rates because the lender is taking on more risk, and origination fees usually run 1% to 2% of the loan. Some lenders will stretch debt-to-income ratios as high as 50% when qualifying you, acknowledging that you’ll be carrying two properties for a stretch. The value is speed: you can make a clean offer on the new house without waiting for a buyer on the old one. The exposure is that if your home takes longer to sell than you expected, interest keeps running, and extending the loan means additional cost.

Sale Contingency in the New Contract

A sale contingency ties your obligation to buy the new home to selling your current one. If your house doesn’t sell inside the agreed window, you can walk away from the purchase without penalty.⁹ No borrowing against equity, no bridge loan, no two mortgages.

Sellers, though, tend to see contingent offers as weaker, particularly in competitive markets. Many who do accept one insist on a kick-out clause that lets them keep marketing the home. If a non-contingent offer comes in, you usually get 72 hours to either drop your contingency and commit to buying, or step aside. In a fast market, the contingency itself can cost you the deal.

Gift of Equity (Family Sales Only)

If the sale is to a family member rather than an arm’s-length buyer, a gift of equity turns your home directly into their down payment. You sell below appraised value, and the difference counts as the buyer’s down payment. A home that appraises at $350,000, sold to your child for $280,000, produces a $70,000 gift of equity.

Fannie Mae allows a gift of equity from an acceptable donor to cover all or part of the down payment and closing costs on a primary residence or second home.¹⁰ The transaction needs a signed gift letter and a settlement statement showing the gift. This path only works between family members; it isn’t a tool for a standard purchase from a stranger.

What You’ll Pay if the New Down Payment Is Under 20%

If you put less than 20% down on the new home with a conventional loan, private mortgage insurance gets added to your monthly payment.¹ PMI protects the lender, not you, and it stays on the loan until you’ve built enough equity in the new home to remove it. When you’re deciding how much equity to pull from the old house, factor PMI into the trade: a bigger down payment can eliminate it, but pulling more equity leaves less cushion for reserves and moving costs.

Risks to Weigh Before You Pick a Path

Carrying two mortgages. Any borrowing-based route (HELOC, home equity loan, cash-out refinance, bridge loan) leaves you paying on two properties if the old one takes longer to sell than planned. Budget for the overlap before you commit.
Over-leveraging. Pulling too much equity leaves a thin cushion. A modest dip in home values can put you underwater when it’s time to sell.
Bridge loan cost. Higher rates and origination fees mean that if the old house sits on the market for months, the interest can eat noticeably into the equity you were counting on.
Kick-out clauses. A contingent offer can be pushed aside quickly if a stronger offer arrives, and you may have only 72 hours to decide.
Lost interest deduction. Interest on a HELOC or home equity loan used as the down payment on a different property is not deductible, which raises the real cost of that borrowing.
Capital gains above the exclusion. Gain over $250,000 for a single filer or $500,000 for joint filers is taxable, so keep records of improvements over the years since those costs raise your basis and reduce the taxable gain.²

Before you start shopping for the new house, get a current mortgage payoff figure and talk with a lender about how much equity is actually accessible under each method. That conversation is what turns the equity number on paper into the down payment you can put on the table.

1
Consumer Financial Protection Bureau. What Is Private Mortgage Insurance
2
Internal Revenue Service. Topic No. 701, Sale of Your Home
3
Internal Revenue Service. Publication 523, Selling Your Home
4
Consumer Financial Protection Bureau. What Is the Difference Between a Home Equity Loan and a Home Equity Line of Credit
5
Consumer Financial Protection Bureau. Home Equity Lines of Credit Brochure
6
Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
7
Veterans Affairs. Cash-Out Refinance Loan
8
Freddie Mac. Maximum LTV TLTV HTLTV Ratio Requirements for Conforming and Super Conforming Mortgages
9
National Association of REALTORS. Consumer Guide Real Estate Sales Contract Contingencies
10
Fannie Mae. Gifts of Equity – Fannie Mae Selling Guide