Can you use a HELOC to buy another house?

Home equity is the difference between the current market value of your home and the amount you owe on the mortgage. If you have equity in your home and want to buy another property, a home equity line of credit is a way to borrow against that equity and put it toward a second home or an investment property. Whether that approach makes sense depends on several factors, including how much equity you have, what you could afford to repay, and your goals for the property.

Can you use a HELOC to buy another house?

You may be able to use a home equity line of credit (HELOC) to help buy another house by borrowing against the equity in your primary residence. Many homeowners use a HELOC toward a down payment or as short-term financing. Approval depends on several factors, including your equity, income, and credit profile. Your primary home serves as collateral, which means your lender could foreclose if payments are not made.

Not all lenders allow HELOC funds to be used for a second home or investment property purchase. Check whether the lender has terms prohibiting this before you apply.

How much equity do you need?

Many lenders limit total borrowing to 80% to 85% of a home's appraised value when issuing a HELOC, though some lenders allow higher limits.

Here is how that math could work: if your home is worth $400,000 and you work with a lender who lends up to 80% of that value, that’s $320,000. Say you still owe $250,000 on the mortgage. That amount is subtracted from the $320,000, which leaves up to $70,000 potentially available to borrow through a HELOC.

Most lenders also evaluate credit score, debt-to-income ratio (DTI), and income documentation to determine how much you could borrow.

How people typically use a HELOC to buy a second home

People sometimes use HELOCs to help fund the down payment on a second home. A HELOC could cover the entire down payment, so you don’t have to draw from savings. Or, a larger draw could reduce the size of the mortgage you need on the new property.

Some homeowners use a HELOC as a bridge loan, which in this situation is short-term financing that covers a new home purchase while an existing home is on the market. In those cases, a HELOC could allow a buyer to move forward with a purchase before finalizing the sale of their current home.

What this means for your existing mortgage

One benefit of a HELOC is that it sits alongside a primary mortgage as a separate loan. It does not replace or modify a current mortgage. That means a HELOC generally does not affect the rate or terms of the primary mortgage. For homeowners who secured a favorable rate, this matters.

Potential advantages of using a HELOC to buy another house

Access funds without depleting savings or selling other assets. You could get cash for a second home purchase from your home equity and avoid dipping into your savings or investments.

Keep your current mortgage rate. A HELOC normally doesn’t change the rate of the primary mortgage. If you have a low rate, you can likely keep it.

Competitive interest rates. Because your home serves as collateral, HELOC rates tend to be low.

Flexibility during the draw period. During the draw period, you can borrow, repay, and borrow again from your HELOC. If you may need to borrow more money for renovations or any other expenses that come up, a HELOC gives you that option.

Strengthen a purchase offer. Access to HELOC funds could support a larger down payment, which may make an offer more attractive to sellers.

Risks to consider

Your home is the collateral. Your home is used as collateral, which means your lender could foreclose if payments are not made.

Multiple loan obligations. A HELOC plus a new mortgage means you need to manage more than one loan.

Variable rates. Most HELOCs carry variable interest rates, which means monthly payments could rise if interest rates increase. Achieve Loans offers a fixed-rate HELOC, which most lenders do not.

Closing costs apply. HELOC closing costs vary by lender and typically range from 1% to 5% of the credit line. Some lenders offer no-closing-cost HELOCs, though these may carry a higher interest rate.

Compare your options

A HELOC is one of several ways to access equity in a home for a second property purchase. Here is how the most common options compare:

HELOC vs. home equity loan for buying a second home

A HELOC offers more flexibility because you can borrow, repay, and borrow again during the draw period. If you plan to fund a second home purchase and pay for renovations over time, a HELOC may be a better fit.

A home equity loan provides a predictable payment schedule because it’s a one-time loan, typically at a fixed rate. If you don’t need ongoing access to funds, a home equity loan could work well.

If you’re interested in buying a second home, your current home equity could help with financing the purchase. Make sure you have a plan for how you’ll use the HELOC and pay it back, since it’s your first home that secures the line of credit.