Using a HELOC to buy another house: down payment rules, DTI and a $50,000 example

8 min read · LenderMatch Learn

Yes, you can use a HELOC to buy another house. A common approach is to draw on a home equity line of credit on the home you own to cover the down payment and closing costs on a second home or rental, then finance the rest with a regular mortgage. Fannie Mae accepts borrowed money secured by an asset you own, including real estate, as a down payment source. The catch: the HELOC payment counts against you when the new lender adds up your debts.

Below are the down payment rules for second homes and investment properties, how a HELOC changes your debt-to-income ratio, a worked example on a $400,000 purchase, and the risks of borrowing against one home to buy another. If you already know you want a line, LenderMatch lets you describe your home once and compare what lenders offer.

How using a HELOC to buy another house works

A HELOC is a line of credit secured by your home. The CFPB explains that you can spend up to your credit limit during the draw period (10 years is a common example), and that rates are usually variable, so payments can change month to month. When the draw period ends, you stop borrowing and start repaying, and the payment often rises. See how a HELOC works for the full picture.

To buy another property, the usual sequence is:

1. Open a HELOC on the home you own, before you make offers.
2. Draw the down payment and closing costs into the account you will close from.
3. Apply for a mortgage on the new property. That lender reviews your income, debts and the HELOC.
4. Close, then repay the HELOC over time.

With a large enough line, some buyers skip the new mortgage and buy a lower-priced property outright, which puts the whole purchase on a variable rate.

Can you use a HELOC for a down payment? What Fannie Mae and Freddie Mac allow

Lenders that sell conventional loans to Fannie Mae or Freddie Mac underwrite to their guides, so those rules are the place to start. Fannie Mae’s Selling Guide (section B3-4.3-15) says borrowed funds secured by an asset are an acceptable source of money for the down payment, closing costs and reserves, because they represent a return of your own equity. Real estate is on its list of assets that can secure the funds. The lender has to document three things:

• the terms of the loan you borrowed against (here, the HELOC agreement),
• that whoever made that loan is not a party to the sale, and
• that the money actually reached you.

A HELOC from a lender you choose, drawn into your own account, generally fits.

How much down payment for a second home or investment property?

The property you are buying sets the minimum down payment. Fannie Mae defines a second home as a one-unit home you live in for part of the year, that is suitable for year-round use and is not a rental or timeshare. A property you own but do not live in is an investment property.

Source: Freddie Mac’s maximum LTV/TLTV/HTLTV ratio requirements for conforming mortgages (accessed October 22, 2026). Individual lenders may require more.

Reserves come on top. For loans run through Fannie Mae’s automated system, its Selling Guide calls for two months of reserves on a second home and six months on an investment property.

How a HELOC affects your debt-to-income ratio

Fannie Mae says the lender must count the monthly payment on a secured loan used for your down payment as a debt. If the HELOC has no payment due yet, the lender must calculate an equivalent payment and count that instead.

Your debt-to-income ratio (DTI) is monthly debt payments divided by gross monthly income. Fannie Mae caps it at 50% for loans run through its automated system, and at 36% (up to 45% with stronger credit and reserves) for manually underwritten loans. When you buy a second home, Fannie Mae also counts the full housing payment on it (principal, interest, taxes, insurance and any HOA dues) in your monthly debts. On a rental, the lender may count expected rent under its rental income rules.

Worked example: a $50,000 HELOC for a $400,000 second home

Say your home is worth $450,000 and you owe $200,000 on it. Your current housing payment, including taxes and insurance, is $1,600 a month, you have a $450 car payment, and your household earns $13,000 a month before taxes. You want a $400,000 second home.

• Down payment: 10%, or $40,000. You draw $50,000 on a HELOC to cover it plus closing costs and reserves.
• HELOC rate: an assumed 8.00% (the 7.00% prime rate as of October 20, 2026, plus a 1.00% margin, for illustration).
• New mortgage: $360,000 for 30 years at 7.40% (Freddie Mac average, week of October 15, 2026), plus an assumed $550 a month for taxes and insurance.

Calculated by LenderMatch. The HELOC rate and the taxes and insurance figure are assumptions for illustration, not quotes.

At $13,000 of income, this buyer sits under both of Fannie Mae’s caps. At $11,000 a month, the same debts would be about 49.3%: inside the 50% automated limit, above the 45% manual ceiling, and with little room for error. On the equity side, the existing loan plus the $50,000 line is 55.6% of the home’s value, inside the 80% to 85% combined limit many HELOC lenders use. Run your own numbers in the home equity calculator and the HELOC payment calculator, and see how much equity you can borrow.

Using a HELOC to buy your next home before you sell

Some people use a HELOC as a bridge: tap the current home for the next down payment, then pay off the line when the old home sells. Two rules shape this.

Open the line before you list. Lender policies vary, but one national bank’s HELOC terms say its lines are not available for homes currently for sale, and a home that was listed must be off the market for at least 90 days before you apply.

Expect to qualify with both payments. Fannie Mae’s Selling Guide says that if your current home will not sell before the new purchase closes, the lender uses both the current and the new housing payment to qualify you. The exception is an executed sales contract on the current home with any financing contingencies cleared.

HELOC or cash-out refinance to buy another house?

A cash-out refinance can also fund a down payment, but it replaces your whole first mortgage. If you owe $200,000 at a low rate and refinance to $250,000, all $250,000 moves to today’s rate, around 7.40% for a 30-year loan (Freddie Mac, week of October 15, 2026). A HELOC leaves the first mortgage alone and charges interest only on what you draw, at a variable rate. The full comparison is in cash-out refinance vs HELOC, and the cash-out refinance calculator shows your numbers.

Should you use a HELOC to buy a second home? The risks

• Your current home secures the debt. The CFPB warns that if you fall behind on a HELOC, you could lose your home. Buying a second property puts two homes behind your income.
• The rate can rise. Most HELOCs are variable, so the payment the lender counted at closing is not fixed.
• The payment jumps later. When the draw period ends, an interest-only payment becomes a principal-and-interest payment. In the example, $333 becomes $418 at the same rate. See what happens when the draw period ends.
• The line can be frozen. The CFPB says a lender may stop new draws if your home’s value drops significantly. Draw what you need for the purchase before closing, not after.
• Tax treatment differs. IRS Publication 936 says home equity interest is deductible only if the money buys, builds or substantially improves the home that secures the loan. A HELOC on your main home used to buy a second home does not meet that test. See is HELOC interest tax deductible.

Check lender minimums in HELOC requirements, and compare offers, since margins and fees vary.

Frequently asked questions

Can I use a HELOC to buy another house?

Yes. Many buyers use a HELOC on the home they already own to pay the down payment and closing costs on a second home or rental, or to buy a lower-priced property outright. Fannie Mae accepts borrowed funds secured by real estate or other assets as a down payment source, with the payment counted in your debt-to-income ratio.

Can I use a HELOC for a down payment on an investment property?

Yes, the same Fannie Mae rule applies. Expect a larger down payment than on a second home: Freddie Mac’s limits allow up to 85% LTV on a one-unit investment property purchase (15% down) and 75% on two to four units (25% down).

Does a HELOC count against my debt-to-income ratio when I buy another home?

Yes. Under Fannie Mae’s rule, the lender must count the monthly payment on a loan used for your down payment as a debt. If the line requires no monthly payment, the lender calculates an equivalent amount and counts that instead.

Can I get a HELOC on a house that is listed for sale?

Often not. One national bank’s HELOC terms say its lines are not available for homes currently for sale, and a home that was listed must be off the market for at least 90 days before you apply. If you plan to sell, open the line before you list, and ask each lender about its rule.

Is HELOC interest tax deductible if I use it to buy a second home?

Not as home mortgage interest when the line is on your main home. IRS Publication 936 says home equity interest is deductible only if the money buys, builds or substantially improves the home that secures the loan. Ask a tax professional about rental use.

Does LenderMatch check my credit?

No. LenderMatch never pulls your credit. A lender you choose may check it, with your permission, when you apply.

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