HELOC Lenders for a Down Payment on a Second Home

The Quick Read: A home equity line can fund the down payment on a second home, but the purchase lender decides whether borrowed funds are acceptable, so the sequence matters as much as the line itself. Lendmire is a mortgage broker, not a lender, and matches the file to a wholesale HELOC lender whose program fits the property, credit profile, and equity.

• On a second-home line, the minimum credit score is 640, and the network ceiling reaches 90% CLTV only at a 720 or better credit profile.
• On an investment property line, the ceiling is 70% CLTV.
• Lines run $25,000 to $750,000, and a line above $500,000 is for a primary residence only.
• A HELOC adds a payment on top of the purchase loan, so the investor’s cash flow has to carry both.
• The purchase lender must accept borrowed funds, so ask that question before drawing.

Availability for these lines is limited to Lendmire’s 16 full-service states. That is narrower than the 41-market DSCR footprint, so confirm your state early. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.

What Is a HELOC, and Why Does It Fund a Down Payment?

A HELOC is a revolving line secured by a home you already own. It produces cash. It does not buy the new property. That cash goes toward the down payment on a separate purchase loan.

The CFPB describes a HELOC as an open-end line you can borrow against repeatedly, with a draw period that can run about 10 years before repayment begins. The FTC adds that you pay interest only on what you borrow, not on the full limit, and that the home secures the line.

Equity is the source. It is the home’s value minus what you owe. The more equity you hold, the larger the line a lender may offer. That is why a homeowner with a paid-down primary residence often looks at this route before selling assets or draining savings.

How Does the Sequence Work, Step by Step?

Open the line first, draw the cash, document where it came from, and only then close on the purchase. Each step is a separate approval, and the second-home lender sees the result of the first.

1. Apply for the line. The lender reviews credit, debt load, and the equity in the collateral. Lines at or below $500,000 ordinarily use an automated valuation, not a full appraisal. A borrower can still request one.

2. Draw the funds. Both wholesale programs on the network require at least 75% of the line to be drawn at closing. Later draws work differently by program. The longer-runway program states a $1,000 minimum for each draw after closing, with a higher minimum in Texas, while the higher-leverage program does not state a subsequent-draw minimum.

3. Document the source. Expect the purchase lender to ask for statements showing the funds. Borrowed money usually has a paper trail, and underwriters read it.

4. Close the purchase loan. This is its own file. A second-home purchase is reviewed on the borrower’s debt ratio, so the new line’s payment can matter there. An investment purchase through a DSCR loan is instead reviewed on the rent against the property’s payment.

Draw timing matters. Ask the purchase lender what it needs before you pull money, not after. The wrong order can leave cash in the account that the purchase lender refuses to count.

How Do HELOC Lenders Decide?

HELOC lenders weigh credit, combined loan-to-value, debt-to-income, property type, and how the title is held. A broker with several wholesale lenders can match those facts to the program that tolerates them.

Across the wholesale programs Lendmire places files with, the main tests look like this:

The debt-ratio test deserves attention. Lenders qualify the borrower on the interest-only payment calculated on the maximum draw, not on what you plan to borrow. A modest draw does not shrink the test.

Which lenders fit depends on the file: the property type, credit profile, leverage need, and documentation. No single program is right for everyone.

How Much Can You Borrow on a Second Home?

On a second-home line, the ceiling scales with credit. The highest tier reaches 90% CLTV only at a 720 or better profile. Lower scores step down, and leverage on any line depends on credit, property, and lender review.

Yahoo Finance notes that some equity is needed before a line makes sense. Market-wide figures vary by lender. The network figures are the ones in the table.

Investment property is different. On an investment line the ceiling is 70% CLTV, with no tier above it. A line above $500,000 is for a primary residence only. It requires a 700 or better credit profile (720 on the longer-runway structure), caps at 75% CLTV, and requires a full appraisal.

What Structures Exist?

Two draw structures run on primary residences and second homes. One is a 3-year interest-only draw with a 17-year fully amortizing repayment. The other is a 5-year draw with a 25-year repayment. Tennessee shortens both.

Investment lines use the 5-year draw and 25-year repayment structure only. Pricing floats during both the draw and the repayment period and never converts to fixed. A line can sit in first or second lien position.

A quoted figure always belongs to one program’s structure.

Second Home or Investment Property: Which Rules Apply?

The occupancy decides the ceiling. A second home carries the tiered ceiling that reaches 90% CLTV only at a 720 or better credit profile. An investment property carries the 70% CLTV cap. The two lines can look alike on paper, but each is reviewed under its own occupancy rules.

Two points trip people up. First, this article covers the line you draw against a property you already own, not the loan on the property you are buying. Second, a rental has to be treated as a rental.

Where Does the Purchase Lender Draw the Line?

The purchase lender may restrict borrowed funds, and the rules differ by program. Some accept them for the down payment with documentation. Some cap the borrowed share. Some want part of the down payment unborrowed.

On a DSCR purchase, the loan is reviewed primarily on property-level rental income covering the payment, subject to lender guidelines. The HELOC payment generally sits outside that ratio. That sounds like a free pass. It is not.

Picture an investor who draws on a primary residence to cover most of the down payment on a rental. The DSCR ratio may clear its program floor. The investor still owes the HELOC payment and the new loan payment from personal cash flow. Clearing the ratio is not the same as positive cash flow, because repairs, vacancy, and management sit outside the calculation.

Borrowed funds are also often excluded from reserves. Down payment, closing costs, and reserves are three separate pots. Reserve rules vary by lender, leverage, and loan size, and commonly sit around 6 months of PITIA on DSCR files.

For the purchase side, the complete DSCR loans guide covers leverage tiers, credit floors, and coverage ratios. Lendmire’s piece on HELOC providers for a business purchase or second-home down payment goes deeper on that side.

Where the General Rule Breaks

A few situations change the answer.

• LLC-owned property. An LLC, corporation, partnership, or irrevocable, blind, or land trust cannot hold title on these lines. Title must sit with the individual or an inter vivos revocable living trust. A property already deeded to an LLC needs a vesting change, or a DSCR cash-out instead.
• Ineligible property types. Manufactured homes, co-ops, condotels, log homes, and commercial, mixed-use, or agricultural-zoned property are not offered.
• Derogatory credit. A bankruptcy needs 4 years of seasoning. Foreclosure history splits by program. One program seasons a foreclosure in 7 years and a deed-in-lieu or short sale in 4. The other declines that history entirely.
• Portfolio size. A borrower is limited to three lines, and owning more than 15 financed properties makes a borrower ineligible.
• Texas primary residences. A Texas primary is a homestead and caps at 80% combined loan-to-value. Second homes and investment properties follow their standard tables.
• Listed properties. A property listed for sale, or listed within the past 60 days, is ineligible in NC, PA, TN, TX, and WA.

If the property is in New Mexico or Ohio, the CLTV cap also depends on the credit profile.

What Does the Investor Decision Look Like?

The decision is whether the added obligation is worth the leverage. A HELOC keeps savings intact and lets you move on a purchase. It also stacks a second payment on top of the first, tied to a variable cost.

The FTC notes that HELOC rates are generally variable, so the carrying cost can rise. The CFPB warns that falling behind could cost you the home that secures the line. Stress-test the payment against a higher cost before you draw.

The strongest files clear two tests: enough equity for the line, and enough rental coverage on the purchase. A larger down payment lowers the new loan’s payment and can lift the DSCR. It never erases leverage caps, credit floors, reserve rules, or property eligibility.

A practical order: confirm the purchase lender’s position on borrowed funds, open and season the line, draw, document, then close. If the numbers only work with a fully borrowed down payment, that is a signal to revisit the deal, not the paperwork.

Key Terms Defined

CLTV: Combined loan-to-value, the total of all loans secured by a property divided by its value.

Draw period: The stretch when you can borrow from the line, often with interest-only payments.

Repayment period: The stretch after the draw ends, when the balance amortizes.

DSCR: A ratio comparing a property’s rent to its principal, interest, taxes, insurance, and any HOA dues.

Seasoning: How long funds or a loan have been in place before a lender counts them.

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. Reach the team at 828-256-2183 or request a quote. An illustrative calculator on the site can help you estimate your own scenario.

About Lendmire

Lendmire — NMLS# 2371349 — is a mortgage broker that arranges home equity lines of credit in its 16 full-service states through wholesale lenders, on primary residences, second homes and investment properties. Every line is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB – What is a HELOC

2. FTC – Home equity loans and HELOCs

3. Yahoo Finance – HELOC for down payment