Yes, you can use a HELOC to buy a house. Homeowners typically do it one of two ways: draw from the line of credit on their current home to cover the down payment on a new mortgage, or pull enough to buy the next property outright with cash. Either approach puts your primary residence up as collateral for the purchase, and that single fact drives most of what you need to think through before signing.
The Two Ways People Do It
The first approach is the “piggyback.” You borrow 80 percent of the new home’s price through a traditional mortgage and use HELOC funds for the remaining 20 percent down payment. The appeal is avoiding private mortgage insurance, which lenders require on conventional loans with less than 20 percent down. PMI premiums typically run from about 0.58 to 1.86 percent of the loan amount per year.1Fannie Mae. What to Know About Private Mortgage Insurance On a $400,000 loan, that is $2,300 to $7,400 a year you would otherwise pay. Reaching the 20 percent threshold with HELOC funds eliminates it.
The second approach is an all-cash purchase funded entirely from the HELOC. If your available equity covers the full price, you can close without a new mortgage on the second property. Sellers tend to favor cash offers because they close faster and don’t hinge on mortgage approval. The purchased home takes title with no lien against it, and you skip a second appraisal, loan origination, PMI, and the closing costs that come with a new mortgage.
The trade-off with the all-cash route is concentration. The entire debt sits on your original home. If you fall behind on payments, that is the property the lender can foreclose on, not the one you just bought. You also carry a large variable-rate balance, so your monthly cost rises if rates climb. Anyone going this way should have a defined repayment plan: refinancing the new property into its own mortgage later, selling the original home, or paying the balance down from income.
Whether You Can Qualify
A HELOC is a revolving credit line secured by your home, with a limit set by how much equity you have. Lenders look at four things.
Equity and CLTV
The combined loan-to-value ratio is the total of all loans secured by your home divided by its appraised value. Most lenders want you to keep 15 to 20 percent equity after the HELOC is added, meaning a CLTV cap of 80 to 85 percent. On a $500,000 home with a $300,000 mortgage balance, an 80 percent cap leaves roughly $100,000 of borrowing room. Some lenders go up to $1 million for borrowers with substantial equity.
Credit and DTI
Most lenders look for a credit score of at least 680. Lower scores draw higher rates, smaller lines, or a denial. Debt-to-income ratio also matters: lenders generally want your total monthly debts, including the new HELOC payment, to stay below roughly 43 to 50 percent of gross monthly income, with the exact threshold depending on underwriting method and compensating factors like reserves.
Reserves
If the second home is a true second home or an investment property, the mortgage lender on that 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 if you already own several financed properties.
How Drawing the HELOC Changes Your New Mortgage Qualification
This is the part that catches borrowers off guard. If you are piggybacking a HELOC with a new mortgage, the HELOC’s required monthly payment counts as debt when the new lender calculates your DTI.2Fannie Mae. B3-6-05, Monthly Debt Obligations A $500 interest-only HELOC payment gets added to your existing obligations, which can push your DTI past the threshold and shrink the mortgage amount you qualify for. Run the numbers with that payment included before you assume the piggyback works.
Source of funds matters too. The new mortgage lender will verify where your down payment came from, and most want to see the funds in your account for 60 to 90 days before closing. This is called seasoning. A large HELOC draw that lands in your account the week before preapproval can trigger extra documentation requests. Move the funds early.
The Tax Picture Is Not What Most Borrowers Expect
Under current IRS rules, HELOC interest is deductible as home mortgage interest only when the borrowed money is used to buy, build, or substantially improve the home that secures the line of credit.3Internal Revenue Service. Publication 936 (2025), Home Mortgage Interest Deduction A HELOC on your primary residence used to buy a different property generally does not qualify. The IRS treats it as personal interest, which is not deductible.
There is one potential exception. If the new property is held 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. The treatment is specific enough that a tax professional should look at your facts before you count on any deduction.
The dollar impact is real. On a $200,000 HELOC balance at 9 percent, first-year interest runs about $18,000. If none of that is deductible, you lose thousands in tax savings a traditional purchase mortgage would typically have delivered. Compare the total after-tax cost, not just the rate, when you weigh a HELOC against a conventional mortgage on the new property.
Risks Worth Weighing
Your Primary Home Is the Collateral
If you cannot keep up with HELOC payments, the lender can foreclose on your current residence, even though the money went toward a different property. Your original mortgage has priority, so the HELOC lender collects only from proceeds remaining after the first mortgage is satisfied. The threat of foreclosure is still real, and a deficiency judgment can lead to wage garnishment or bank account levies.
Variable Rate and Payment Shock
HELOC rates are almost always variable, tied to the prime rate plus a margin. If prime is 7.50 percent and your margin is 2 percent, your rate is 9.50 percent, often above a 30-year fixed mortgage. Rates can move during the life of the line.
The second shock comes at the end of the draw period. Draw periods usually run about 10 years with interest-only payments. When they end, the balance converts to a fixed repayment schedule, typically over 20 years, with principal and interest. On a $150,000 balance, that conversion alone can nearly double your monthly payment, before any rate change. Some lenders will let you convert part of the balance to a fixed-rate segment during the draw period, which caps that risk on a portion of the debt.
Your Lender Can Freeze the Line
A HELOC lender can freeze or reduce your credit line if your home’s value drops significantly or if the lender decides your financial circumstances have materially changed.4Federal Trade Commission. Home Equity Loans and Home Equity Lines of Credit If you were planning to draw more for closing costs, repairs, or carrying costs on the new property, a freeze can leave you short at the worst moment. A housing downturn is exactly when both the freeze is most likely and your cash cushion is most needed.
Debt on Two Properties
With the piggyback approach, you carry debt on both homes. A job loss, major repair, or vacant rental month can cascade across your whole balance sheet. Budget for both sets of payments, both tax bills, both insurance premiums, and maintenance on both properties, with a reserve for the months when something breaks.
A HELOC can be an effective way to buy another house when you have strong equity, stable income, and a clear exit on the balance. It becomes dangerous when it is used to stretch into a purchase you could not otherwise afford, because the stretch is secured by the roof over your head.