You can use a line of credit to buy a house, but the type of line decides whether it will actually work. A line secured by an asset — your home’s equity or an investment portfolio — is accepted by mortgage lenders as a source of down payment funds. An unsecured personal line of credit is not. And if you skip the mortgage altogether and draw the full purchase price from a line of credit to buy as a cash buyer, the lender’s rules don’t apply, but every dollar of risk shifts to you.
What Mortgage Lenders Accept as Down Payment Money
Conventional mortgages follow Fannie Mae’s Selling Guide. Section B3-4.3-15 sets the governing rule: borrowed funds can be used for a down payment, closing costs, and reserves only if they are secured by an asset. Eligible collateral includes real estate, vehicles, financial accounts, stocks, bonds, and retirement accounts.
Section B3-4.3-17 handles the other side. Personal unsecured loans are not an acceptable source of funds for a down payment, closing costs, or financial reserves. The guide names signature loans, credit card lines of credit, and overdraft protection as prohibited sources.
Even acceptable funds have to be seasoned. Lenders want down payment money to have been sitting in an established account for at least 60 days before your application, and they verify this through two months of bank statements. Any large deposit inside that window prompts a paper trail request: you’ll need to document the source and prove it isn’t a hidden loan.
Using a HELOC for a Down Payment
A home equity line of credit is the most common way buyers put borrowed money into a down payment. Because a HELOC is secured by your existing home, it clears the Fannie Mae rule. That makes it practical for homeowners buying a new property before selling the current one, or for investors acquiring rentals without draining cash reserves.
Pairing a HELOC with a primary mortgage at closing is sometimes called a piggyback loan. The classic structure pushes the borrower past the 20% equity threshold on the new mortgage, which eliminates private mortgage insurance. A common split: 80% primary mortgage, 10% HELOC, 10% cash down.
Expect the new lender to pull documentation from your HELOC provider showing the available balance, interest rate, and repayment terms. The monthly HELOC payment folds into your debt-to-income calculation on the new mortgage, so a large draw can shrink the loan amount you qualify for. Buyers often miss this: the HELOC feels like extra purchasing power, but the new lender counts the payment against you.
HELOCs run in two phases. The draw period usually lasts five to ten years, with flexible borrowing and interest-only payments. The repayment period that follows runs 10 to 20 years, with no new borrowing and payments that cover both principal and interest. The jump at that transition can be significant, so plan for it before you draw heavily.
h2>Using a Securities-Backed Line of Credit
If you hold a brokerage account with stocks, bonds, or mutual funds, a securities-backed line of credit lets you borrow against the portfolio without selling any of it. The investments stay in the account as collateral. Because the loan is secured by liquid assets, mortgage lenders generally treat the proceeds the same way they treat HELOC funds.
The main appeal is avoiding a taxable sale. Liquidating investments for a down payment can trigger long-term capital gains tax of 0%, 15%, or 20% depending on income, which for most middle and upper-income buyers means a 15% hit on gains. Borrowing against the portfolio keeps those gains unrealized.
Pricing on these lines usually has two parts: a variable component tied to the Secured Overnight Financing Rate (SOFR) and a fixed spread based on account size. Larger accounts get a smaller spread. All-in rates tend to be competitive with HELOCs, though they move with the market.
The risk that catches people off guard is the maintenance call. If the market drops and your portfolio’s value falls below what’s needed to support the balance, the lender will demand additional collateral or partial repayment, usually within two or three days. If you can’t meet the call, the firm can sell your securities to cover the shortfall and lock in losses at the worst time. Anyone using this approach to buy a home should keep a wide buffer between the amount borrowed and the portfolio’s value.
Why Unsecured Personal Lines Don’t Work
An unsecured personal line of credit — borrowed on your credit score and income with no asset pledged — is one of the few funding sources Fannie Mae explicitly bans for mortgage down payments. The reasoning is that unsecured borrowing adds debt without adding any offsetting asset, which means the lender would effectively be financing more than the home is worth. FHA loans follow the same principle, listing unsecured signature loans, credit card cash advances, and borrowing against household goods as unacceptable sources.
Seasoning doesn’t fix the problem. Even if the proceeds have been sitting in your account for months, the repayment obligation still shows up in your debt-to-income ratio, and if underwriting traces the funds back to an unsecured line, the application can be denied. The one narrow exception is when the unsecured funds have been fully repaid before you apply — but at that point the money going toward the house is your savings, not the credit line.
Buying a House Entirely With a Line of Credit
A different strategy skips the mortgage lender altogether: draw the full purchase price from a line of credit and buy as a cash buyer. With no third-party mortgage, Fannie Mae’s rules on acceptable sources, seasoning, and debt-to-income don’t apply. The transaction runs between you, the seller, and the credit line provider.
To make a cash offer, you’ll need a proof-of-funds letter from the institution holding the line, confirming the credit line is active and the available balance covers the purchase price. Sellers and title companies treat it the way they treat a bank statement showing liquid cash. At closing, funds are wired directly to the escrow or title agent.
The speed is real. Without a mortgage underwriting timeline, cash closings can happen in as little as seven to ten days. In competitive markets, that speed and the absence of a financing contingency can make your offer more attractive even when it isn’t the highest bid.
The tradeoff is carrying the entire property value as variable-rate debt instead of a fixed-rate mortgage. Many buyers who use this approach treat it as a bridge: close quickly with the line of credit, then refinance into a conventional 30-year mortgage within a few months. The refinance brings its own closing costs and underwriting requirements, so factor those in before you commit.
Risks to Weigh Before You Draw
The structural risk with any line of credit is the variable rate. HELOC rates in early 2026 are averaging around 7%, with recent ranges running from under 5% to nearly 12% depending on lender and credit profile. A two- or three-point move on a large balance can add hundreds of dollars to the monthly payment with little warning.
Using a HELOC to buy a second property leaves you leveraged across two homes. If values decline, you could owe more than both properties are worth, and missed payments on either loan put the home securing it at risk. Securities-backed lines carry market risk on top of rate risk, and a sharp decline can force a maintenance call days after it happens. If the borrowed funds are already sitting in a house, raising cash to meet the call may mean selling other assets at a loss.
Payment shock at the end of a HELOC draw period is a separate trap. Comfortable interest-only payments of a few hundred dollars a month can double or more once principal payments kick in. A buyer who hasn’t modeled that shift feels it like a second mortgage they forgot about.
Tax Treatment of the Interest
Whether interest is deductible depends on how you use the money and what secures the loan.
HELOC interest is deductible only when the funds are used to buy, build, or substantially improve the home that secures the line. Taking a HELOC on your current house and using the proceeds as a down payment on a different one generally produces nondeductible interest, because the funds weren’t used to improve the secured property. The deduction applies to acquisition debt up to $750,000 for most filers, or $375,000 for married filing separately. Homes acquired before December 16, 2017, qualify for the older limits of $1,000,000 and $500,000.
Securities-backed line interest follows different rules. Use the proceeds to buy an investment property and the interest may be deductible against rental income. Use them to buy a personal residence and the interest is personal — nondeductible, because the loan isn’t secured by the home.
Interest on unsecured personal lines used for personal expenses, including a home purchase, is never deductible. The IRS classifies credit card and installment interest for personal purposes as nondeductible personal interest.
Costs Beyond the Interest Rate
Opening a HELOC isn’t free. Closing costs typically run 2% to 5% of the credit line amount and can include an appraisal, title search, recording fees, and origination charges. Some lenders advertise no-closing-cost HELOCs, which often come with higher rates or clawback provisions if you close the line within the first few years. Annual fees and inactivity fees are also common.
Securities-backed lines usually have lower upfront costs, since no appraisal or title work is involved. The main ongoing cost is the spread over SOFR, which varies by lender and account size.
If you use a line of credit as a bridge and then refinance into a conventional mortgage, you’re paying closing costs twice: once to open the credit line and again on the mortgage refinance. For the strategy to pay off, the advantage of a cash offer or the speed of closing has to outweigh those doubled transaction costs. Run the numbers before you commit.