How to Use a HELOC for a Down Payment on a Second Home

Quick Answer: Yes, you can use a HELOC for a down payment on a second home—and many real estate investors do exactly this. It's a legitimate strategy to access equity without selling investments or draining savings. But it comes with real risks, and you'll be managing three payments instead of one.

Here's how the strategy works, what you need to qualify, and how to decide if it's right for you.

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Can You Use a HELOC for a Down Payment?

Absolutely. Once you draw funds from a HELOC, that money is yours to use however you want—including as a down payment on:

• A vacation home
• An investment/rental property
• A second primary residence (if relocating)

Most lenders don't restrict how you use HELOC funds. The second home's mortgage lender will verify your down payment source, but HELOC funds are an acceptable answer.

The real question isn't "can you?" It's "should you?"

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How Much Can You Borrow?

Your HELOC amount depends on your available equity. Here's the formula:

Maximum HELOC = (Home Value × 80%) – Current Mortgage Balance

Example Calculation

If you're buying a $400,000 vacation home with 20% down, you'd need $80,000. With $100,000 in available HELOC capacity, you've got it covered—plus extra for closing costs.

Important: Some lenders allow up to 85% or even 90% LTV, but most cap at 80%. Higher LTV means higher rates and more risk.

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The Three-Payment Reality

This is where things get real. When you use a HELOC for a down payment, you're committing to three monthly obligations:

1. Primary home mortgage – What you're already paying
2. HELOC payment – Usually interest-only during the draw period
3. Second home mortgage – Your new payment

What This Looks Like

That's $4,625/month in housing costs alone. Before you proceed, make sure your budget can handle it—even if rental income from the second property falls short.

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Qualifying for Two Mortgages

Here's the catch: the HELOC payment counts as debt when you apply for the second home mortgage.

Debt-to-Income (DTI) Requirements

Most lenders want your total DTI under 43-45%. Here's how to calculate:

DTI = (All Monthly Debt Payments) / (Gross Monthly Income)

Example

At 36.8% DTI, this buyer qualifies. But add a few more obligations, and you could hit the ceiling fast.

The Sequence Matters

To make this work:

1. Get the HELOC first – Apply while your DTI is lowest
2. Then apply for the second mortgage – Include HELOC payment in your debt calculation
3. Don't draw HELOC funds until needed – Some lenders consider the full credit line in DTI even if unused; ask before applying

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Step-by-Step Process

Step 1: Calculate Your Equity

Use recent comparable sales to estimate your home value, then subtract your mortgage balance. If you have less than 25-30% equity, this strategy may not work.

Step 2: Apply for the HELOC

Start here. The HELOC approval process takes 2-6 weeks (or as little as 7 days with fast lenders). You don't need to draw funds yet—just get the credit line in place.

Step 3: Get Pre-Approved for the Second Mortgage

Once your HELOC is approved, apply for pre-approval on the second home loan. The lender will include your potential HELOC payment in the DTI calculation.

Step 4: Find Your Property

With both approvals in hand, you can shop confidently. Sellers take your offers seriously when financing is secured.

Step 5: Close and Fund

When you find the right property:

1. Draw HELOC funds for down payment and closing costs
2. Close on the second home
3. Begin managing your three payments

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Risks to Consider

This strategy has real risks. Before proceeding, honestly assess:

1. Overleveraging Your Primary Home

You're using your home as collateral twice—for your mortgage and HELOC. If property values drop or you face financial hardship, you could owe more than your home is worth.

2. Variable Rate Risk

Most HELOCs have variable rates. If rates rise, your HELOC payment increases. On a $100,000 balance, each 1% rate increase adds $83/month.

3. Market Downturns

If both properties lose value simultaneously, you could be underwater on two mortgages plus a HELOC. This happened to many investors in 2008-2010.

4. Rental Income Uncertainty

If you're buying a rental property and counting on income to cover payments, remember: vacancies happen. Budget for 2-3 months of vacancy per year.

5. Cash Flow Pressure

Three payments on two properties means less flexibility. Job loss, medical emergency, or major repairs become harder to absorb.

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When This Strategy Works Best

Good candidates:

• Strong income with DTI under 35% after all payments
• Emergency fund covering 6-12 months of ALL payments
• Second property generates reliable rental income
• You're comfortable with real estate risk
• Interest rates are stable or declining

Think twice if:

• DTI will exceed 43% with all payments
• You have minimal emergency reserves
• The second property is speculative (appreciation-dependent)
• You're already carrying significant other debt
• Interest rates are rising rapidly

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Alternatives to Consider

A HELOC isn't the only way to fund a down payment:

Cash-Out Refinance

Replace your existing mortgage with a larger one and pocket the difference. Best when: current mortgage rates are near or below your existing rate.

Sell Investments

Liquidating taxable investments avoids taking on new debt. Best when: you have gains you're comfortable realizing or losses to harvest.

Gift from Family

Many buyers receive down payment gifts. Best when: family is willing and able, and you document the gift properly.

Wait and Save

Sometimes the boring option is the right one. Best when: you're not in a rush and can reach your goal in 1-2 years.

Cross-Collateral Loan

Some lenders offer loans secured by multiple properties. Best when: you want one loan instead of multiple.

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HELOC for Down Payment FAQs

Will the second home lender accept HELOC funds for a down payment? Yes, most lenders accept HELOC funds as a legitimate down payment source. You'll need to document where the funds came from.

Do I need to disclose the HELOC on my second mortgage application? Absolutely. The HELOC will show on your credit report anyway, and the payment counts toward your DTI. Non-disclosure is mortgage fraud.

Can I use a HELOC for an investment property down payment? Yes. Investment properties typically require 20-25% down, so a HELOC is commonly used for this purpose. Note that the second mortgage rate will be higher for investment properties.

What happens if I can't make the payments? You risk foreclosure on your primary home (secured by both the mortgage and HELOC) and the second property. This is why conservative debt levels are critical.

Is there a minimum I need to keep in the HELOC? Some HELOCs have minimum draw requirements or inactivity fees. Check your terms.

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The HonestCasa Approach

Using a HELOC for a down payment is a legitimate wealth-building strategy—but it's not for everyone. We believe in honest conversations about both the opportunity and the risk.

Before you proceed, ask yourself:

• Can I afford three payments if the rental sits vacant?
• Am I comfortable with this level of leverage?
• Do I have reserves beyond the down payment?

If the answers are yes, a HELOC can be a powerful tool. We'll help you move fast—7-day closings mean you're ready when the right property appears.

Want to explore your options? [Calculate your available equity →]

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Summary

You can absolutely use a HELOC for a down payment on a second home. Here's what to remember:

1. Calculate your equity – Most lenders allow up to 80% LTV
2. Plan for three payments – Primary mortgage, HELOC, and second mortgage
3. Check your DTI – Must qualify for both loans simultaneously
4. Get the HELOC first – Then apply for the second home loan
5. Maintain reserves – 6-12 months of all payments
6. Know the risks – Overleveraging, rate changes, market downturns

Done right, this strategy can help you build a real estate portfolio without liquidating other assets. Done wrong, it can put your primary home at risk.

Make sure you're on the right side of that equation.

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Last updated: February 2026