HELOC Lenders to Fund a Down Payment on the Next Home

The Quick Read: A home equity line of credit (HELOC) can fund the down payment on your next home, but two separate lenders must each say yes: the HELOC lender approves you and your equity, while the purchase lender decides whether borrowed money counts toward the down payment on a rental. Lendmire is a mortgage broker that matches your scenario to a wholesale HELOC lender. The lenders that write your line depend on the occupancy, credit profile, and leverage you need.

• Combined loan-to-value (CLTV, all mortgages on the home added together and divided by its value) tops out at 90% on a primary residence or second home, and only at a 720-or-better credit profile. On an investment property it tops out at 70%.
• At least 75% of the line is drawn at closing, so most of the balance starts costing interest on day one.
• Many purchase programs treat borrowed down-payment money differently from savings, and borrowed money is commonly excluded from reserves.
• Clearing 1.00 coverage on the new rental does not mean positive cash flow once the line’s payment is counted.
• Timing matters, because a lender can freeze a line that is still unused.

Why the Down Payment Needs Two Approvals

A HELOC is a revolving line of credit secured by a home you already own. Equity is the home’s value minus what you owe on it, and the line lets you borrow against that equity as needed, up to a limit. Consumer finance coverage, including a Yahoo Finance explainer on HELOC down payments, notes that you can draw up to your approved limit to cover a down payment and fees on a second home or investment property.

So the HELOC itself is not the hard part. The hard part is that a second lender is waiting on the other side.

The HELOC lender looks at you: your credit, your debt load, and your equity. The purchase lender looks at the deal and at where your cash came from. A DSCR lender (one that qualifies a rental loan primarily on property-level rental income covering the payment, subject to lender guidelines) may accept a borrowed down payment under one program and cap it under another. Neither approval carries over to the other.

That is why the question “which HELOC lender?” is only half the question. Lendmire brokers HELOC lines through select wholesale partners and does not lend directly. It cannot hand you one name that suits every borrower, because the right program depends on property type, credit profile, leverage need, and documentation. Lendmire’s HELOC lines are limited to its 16 full-service states (AL, CA, CO, FL, GA, IN, MI, MT, NM, NC, OH, PA, TN, TX, VA, WA). That footprint is narrower than its DSCR footprint, which covers 41 markets including Washington, D.C.

How HELOC Underwriting Works, Step by Step

Here is the sequence a line follows from your equity to the cash in your purchase contract.

1. Count your equity. Add your first mortgage to any other liens, then compare the total with the home’s value. That ratio is your CLTV, and every program caps it.

2. Identify the occupancy. The home securing the line is a primary residence, a second home, or an investment property. Each carries its own credit floor and CLTV ceiling.

3. Pass the credit and debt checks. The network programs use a 600 credit floor at the low end, and a single-bureau score keyed to the primary wage earner. The credit report can be no more than 90 days old at closing. Debt-to-income (DTI, your monthly debts divided by your monthly income) is capped at 50%, or 45% for scores from 600 to 679. A ratio above 45% requires a 680 minimum.

4. Value the home. Lines at or below $500,000 ordinarily use an automated valuation instead of a traditional appraisal, though a higher CLTV may call for a second valuation. Every line above $500,000 requires a full appraisal, and you can ask for one at any size.

5. Draw at closing. At least 75% of the line must be drawn when the line closes. The DTI test is run on the interest-only payment calculated on the maximum draw, so qualifying assumes you borrow the whole limit.

6. Document the trail. Keep the HELOC closing statement, the draw record, and the transfer into your account. The purchase lender will want the money sourced.

Step five surprises many borrowers. If you open a $500,000 line “just in case,” most of it is drawn and accruing interest immediately. Size the line to the down payment you need rather than to the maximum you can get.

What Each Occupancy Allows

The network’s ceilings are tiered by occupancy, and the gap between tiers is wide. Always read the ceiling for the property that actually secures the line.

Primary-residence lines also have a 75% CLTV tier at 700 or 720 and above, available up to $750,000. Lines range from $25,000 to $750,000 in size, and $750,000 is the largest single line on the network. A line above $500,000 is for a primary residence only. It needs a credit profile of 700 or better (720 on the longer-runway structure, described below), it caps at 75% CLTV, and it requires a full appraisal. Combined exposure across several lines is a separate limit, covered under the draw structures.

Picture a borrower with a 720 credit profile whose first mortgage equals 55% of the home’s value. A 75% CLTV tier leaves room for a line worth about 20% of the home’s value. If the home they want to buy is priced near their current home’s value, that line lands near a 20% down payment. At the 90% tier (a line up to $500,000), the same borrower could draw more, but the home’s value still limits the line. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

The federal consumer agency’s booklet on HELOCs illustrates the general method: take a percentage of the home’s appraised value, then subtract what you owe. Its example uses 75 percent, which is an illustration of the math and not a program figure. On this network, the investment-property ceiling is 70% CLTV, and nothing sits above it.

Draw Structures and Variations

Two draw structures exist for primary residences and second homes. The shorter-draw structure pairs a 3-year interest-only draw with a 17-year fully amortizing repayment. The longer-runway structure pairs a 5-year draw with a 25-year repayment. Investment lines run only on the longer-runway structure, alongside their 700 minimum credit profile and 70% CLTV ceiling.

Either way, the line can sit in first or second lien position as a standalone line. Pricing floats during both the draw and the repayment period and never converts to fixed. The longer-runway structure sets a $1,000 minimum for later draws, and the shorter-draw structure does not state one. Combined exposure across your lines is capped at $750,000 on the longer-runway structure and $2,000,000 on the shorter-draw structure. You can hold at most three lines.

The payment picture changes at the end of the draw period. The CFPB’s HELOC overview explains that you can spend up to your limit during the draw period, then the line moves to a repayment period where the payment steps up. A short hold with a refinance or sale plan fits that shape better than a long hold. Floating pricing adds a second reason to plan an exit.

How the Purchase Lender Treats the Money

Now the second approval. A DSCR loan compares monthly rent to the full monthly obligation: principal, interest, taxes, insurance, and any HOA dues (together, PITIA). The complete DSCR loans guide walks through that math in detail. For this article, three points matter.

Your down payment shapes the loan. Across the wholesale network, most purchase files land at 75% to 80% LTV, which means 20% to 25% down. Select programs reach 85% LTV (15% down) with roughly a 700 or better score. A larger down payment shrinks the loan and can lift the coverage ratio. It never erases leverage caps, credit floors, reserve rules, or property eligibility. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.

Borrowed money is treated program by program. Some DSCR programs accept a down payment from a line that was drawn and seasoned (left in your account for a period) before you went under contract. Others cap the borrowed share. Reserves are the cushion lenders want you to hold after closing, commonly around 6 months of PITIA, though they vary by lender, leverage, loan size, and transaction type. Borrowed funds are commonly excluded from reserves. A HELOC can cover the down payment without covering the cushion. Ask for the purchase lender’s treatment in writing before you open the line.

The ratio and your cash flow are different things. The HELOC payment is generally not part of the DSCR ratio, because the ratio measures that property’s rent against that property’s payment. Even so, you pay it every month. Clearing 1.00 coverage is also not the same as positive cash flow, since repairs, vacancy, management, utilities, and capital expenses all sit outside the calculation. Coverage of 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.

Think about what stacking looks like. Two liens now sit on two properties, and total borrowing against the deal can approach the whole price. Rent has to carry the new loan and your line, and your income has to carry whatever rent does not.

Where the General Rule Breaks

The steps above hold for a typical file. These edge cases bend them.

• The line can be frozen. Lenders can generally freeze or reduce a line if the home’s value falls or your finances worsen. A frozen line in the middle of a purchase is a real risk, which is why drawing before contract matters.
• A listed home can be ineligible. In six of the 16 full-service states (IN, NC, PA, TN, TX, WA), a property that is listed for sale, or was listed within the past 60 days, cannot secure a line. A borrower planning to sell the old home and use the equity as a bridge should open the line before listing.
• A rental can secure a line, with a tighter ceiling. Investment-property lines need a 700 minimum credit profile and top out at 70% CLTV and $500,000. The White Coat Investor also notes that a HELOC on an investment property is harder to get than one on a primary residence.
• An LLC cannot hold the title. Fee simple or leasehold title must sit with you individually or in a revocable living trust. A property already deeded to an LLC needs a vesting change or a DSCR cash-out refinance instead, subject to lender program eligibility. This is the sharpest structural difference from a DSCR loan.
• Some property types are out. The HELOC programs do not offer manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, or agricultural-zoned properties. Single-family, 2-4 unit, PUD, townhome, and condo properties (including non-warrantable condos) are eligible. For DSCR purchases, manufactured homes (single- and double-wide), log homes, and barndominiums are not offered.
• Credit history can narrow the options. A bankruptcy needs 4 years of seasoning from discharge or dismissal. Foreclosure history splits by program on primary residences and second homes: one program seasons a foreclosure at 7 years and a deed-in-lieu, pre-foreclosure, or short sale at 4, while the other declines the history entirely.
• Portfolio size has a limit. A borrower with more than 15 financed properties is not eligible.
• The old home may not be rentable. Some line agreements restrict renting out the home that secures them. Read the terms before you convert your old residence into a rental.

When It Fits and When to Skip It

A HELOC fits when you have enough equity at your credit tier, a plan to refinance or sell inside the draw period, and income that carries the line’s payment without help from the new rental. It also fits when your savings would otherwise sit idle while you wait for a purchase.

It does not fit when the equity is thin, when the new property clears coverage only barely, or when losing the home that secures the line would be a disaster. That advice is blunt, and it applies here.

A DSCR cash-out refinance is the main alternative when you already own a rental with equity. It draws against the rental instead of your home. The network tops out around 75% LTV on a cash-out of a standard rental and 70% on a cash-out of short-term-rental collateral, and about 6 months of seasoning is the common expectation. Short-term rental rules can vary by city, county, HOA, and property type, so investors should confirm local rules before relying on projected rental income. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.

The decision comes down to two questions. Does your home carry enough equity at the CLTV tier your credit allows? And does the purchase lender accept the money you plan to draw? You need yes on both.

Key Terms Defined

Draw period: The stretch when you can borrow from the line and, on these programs, pay interest only.

Repayment period: The stretch after the draw ends, when the balance fully amortizes and the payment steps up.

Seasoning: The time money has sat in your account or a loan has been on a property before a lender counts it.

Source of funds: The documented origin of your down payment, shown by statements and a transfer trail.

Second lien: A loan recorded behind your first mortgage, paid second if the home is sold or foreclosed.

PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly obligation on a property.

If you are considering a home equity line and want to see how the numbers work, Lendmire can help you compare HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals.

The investors who handle this well treat the line as a short bridge with a plan to repay it, and they get the purchase lender’s answer on borrowed funds before they draw a dollar.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and real estate investors in its 16 full-service states open home equity lines of credit arranged through wholesale lenders. Lendmire is never the lender; line amounts, ceilings and terms are set by the lender under its guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Yahoo Finance explainer on HELOC down payments

2. CFPB – What you should know about home equity lines of credit

3. CFPB’s HELOC overview

4. White Coat Investor – HELOC on investment property