The Quick Read: A home equity line of credit (HELOC) does not buy the house; it puts cash in your account from equity in a property you already own, and a separate purchase loan, often a DSCR loan, buys the new property. Which lender fits depends on the occupancy of the property securing the line, your credit profile, how much equity is left after your first mortgage, and whether the purchase lender accepts borrowed down-payment funds.
- The line must sit on a property you already own. You cannot open one on the house you are about to buy.
- On this network, a line on an investment property tops out at 70% combined loan-to-value (CLTV), while a line on a primary residence or second home can reach 90% CLTV only at a 720-or-better credit profile.
- The DSCR ratio on the new property compares rent to that property’s own payment. Your line payment never enters the ratio, but you still have to pay it.
- The purchase lender sets its own rules on borrowed funds, so ask before you draw.
- Everything here is subject to lender guidelines and full file review. None of it is a commitment to lend.
Key Terms Defined
HELOC: A revolving credit line secured by a property you own, drawn as cash in stages rather than all at once.
CLTV (combined loan-to-value): All loans secured by a property, added together and divided by the property’s value.
DSCR (debt service coverage ratio): Monthly rent divided by the monthly principal, interest, taxes, insurance, and any HOA dues on the property being financed.
PITIA: Principal, interest, taxes, insurance, and association dues, the full monthly obligation a DSCR loan tests against rent.
Draw period: The stretch when you can borrow from the line and pay interest only. Repayment follows, and it fully amortizes.
Seasoning: How long funds have sat in your account, or how long you have owned a property, before a lender counts them.
Source of funds: The paper trail showing where your down payment came from.
How large a line the equity supports.
An equity line is sized by combined loan-to-value, occupancy, and credit — not by rental coverage. Switch the occupancy or the credit band and the ceiling moves with it.
Investment-property lines require a 700 minimum credit score; second-home lines start at a 640 minimum and primary-residence lines at 600, and the combined-LTV ceiling steps down as the credit band drops on primary-residence and second-home lines and holds on investment-property lines; the line cap steps down on primary-residence lines and holds at every tier on investment-property and second-home lines.
A debt-to-income ratio above 45% requires 680+ credit. Profiles under 640 are limited to single-family homes. At least 75% of the approved line is drawn at closing. Ceilings, floors, and caps update from Lendmire’s centralized guideline source.
Line estimate
Illustrative estimate only — not a quote, Loan Estimate, approval, or commitment to lend. The rate is an editable assumption; equity-line pricing is variable through both the draw and repayment periods and never converts to fixed. Occupancy and credit drive the ceiling together: an investment property tops out at 70% combined LTV (minimum credit 700, line cap $500,000); a second home tops out at 90% combined LTV (minimum credit 640, line cap $500,000), with the ceiling stepping down as the credit band drops (the cap holds at every tier); a primary residence tops out at 90% combined LTV (minimum credit 600), and its $750,000 maximum line is available only at 75% combined LTV or below with a 700-or-better credit profile (720 on the longer-runway program) and a full appraisal. Lines above $500,000 require a full appraisal. Credit, debt-to-income, property type, and full underwriting review all affect the final line.
How Does a HELOC Help You Buy Another House?
A HELOC turns equity in one property into cash for the down payment on another. The line is the source of funds. The purchase loan is the acquisition. Keeping those two jobs separate clears up most of the confusion on this topic.
Investors use the cash for a down payment, for closing costs, or for reserves. Some use it to bridge a purchase until a refinance repays the line. Lenders generally do not restrict what you spend line proceeds on, as Benzinga notes. The purchase lender, though, still reviews where your down payment came from.
The appeal is simple. You skip selling the first property, and you skip refinancing a first mortgage you may want to keep. Yahoo Finance illustrates the idea with a home worth $500,000 and a $300,000 balance, which leaves 40% of the value as equity. A slice of that equity becomes the down payment on the next property.
How Does Underwriting Treat the Line, Step by Step?
The new purchase loan is underwritten on its own terms, and the line is treated as a source of cash. Here is the sequence a typical file follows.
1. Pick the collateral. The line can sit on a primary residence, a second home, or an existing rental. Each carries different limits, covered below.
2. Calculate usable equity. Take the property’s value, multiply by the maximum CLTV for your credit tier and occupancy, then subtract every existing lien. What remains is the most the line can be.
3. Open the line before you shop. Open it before you sign a purchase contract, and hold off drawing until you have a target. Opening new credit in the middle of a purchase application can complicate the file.
4. Draw and document. Move the funds into your own account and keep the statements. The funds then sit in your name.
5. Purchase underwriting. DSCR underwriting qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. Your line payment is not in that ratio.
6. Source-of-funds review. Some purchase programs accept a documented, seasoned draw secured by a different property. Others cap the borrowed share or want part of the down payment in unborrowed cash.
7. Down payment and reserves are separate tests. Borrowed money often cannot count toward both.
Two things decide the outcome: how the purchase program treats borrowed funds, and how much equity is left after the draw.
What Do HELOC Lenders Look For?
The wholesale HELOC lenders Lendmire works with set limits by how the collateral property is used. Lendmire is a broker, not a lender, so these are program ranges for the line itself.
| Factor | Primary residence | Second home | Investment property |
|---|---|---|---|
| Minimum credit | 600 | 640 | 700 |
| Top CLTV | 90% (720+ only) | 90% (720+ only) | 70% |
| Maximum line | $750,000 | $500,000 | $500,000 |
| Draw structure | Two options | Two options | 5-year draw only |
Do not read the top CLTV as the typical one. On a primary residence, the 90% tier applies only at a 720+ profile and only on lines up to $500,000. A primary-residence line above $500,000, up to the $750,000 maximum, caps at 75% CLTV and requires a full appraisal.
Here is how the primary-residence tiers step down by credit profile:
- A 720+ profile also reaches 75% CLTV on lines up to $750,000.
- A profile of 700+ reaches 85% CLTV on lines up to $500,000, and 75% CLTV on lines up to $750,000.
- A 640+ profile reaches 80% CLTV on lines up to $500,000.
- A 600+ profile sits at 60% CLTV on lines up to $400,000.
On a second home, a 660+ profile reaches 80% CLTV and a 640+ profile reaches 75%. On an investment property, every eligible profile stops at 70% CLTV, and the credit floor there is 700.
Other limits apply across the network:
- Line size: from $25,000 to $750,000. A line above $500,000 is for primary residences only, needs a credit profile of 700 or better (720 on the 5-year-draw structure), caps at 75% CLTV, and requires a full appraisal.
- Debt-to-income: 50% maximum, or 45% for profiles from 600 to 679. A ratio above 45% requires a 680 minimum. The test uses the interest-only payment on the maximum draw.
- Valuation: lines at or below $500,000 ordinarily run an automated valuation. A higher CLTV may require a second valuation, and you can ask for a full appraisal in any case.
- Credit history: a single-bureau score keyed to the primary wage earner, with a report no more than 90 days old at closing. A bankruptcy needs 4 years of seasoning from discharge or dismissal.
- Property types: single-family, 2-4 units, PUDs, townhomes, and condos, including non-warrantable ones. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural zoning are not eligible.
- Title: the individual borrower or a revocable living trust must hold title. An LLC cannot. A property already deeded to an LLC needs a vesting change, or a DSCR cash-out refinance instead.
- Exposure: a borrower is limited to three lines, and an owner of more than 15 financed properties is not eligible.
- Geography: HELOC placement is available in 16 states, a narrower footprint than the DSCR program’s 41 markets. A property listed for sale, or listed within the past 60 days, is ineligible in several of those states.
What Do the Two Draw Structures Mean for You?
The network offers two draw structures on primary residences and second homes. One has a 3-year interest-only draw followed by a 17-year repayment. The second is a 5-year interest-only draw followed by a 25-year fully amortizing repayment. Investment lines use the 5-year structure only.
At least 75% of the line is drawn at closing. That means you start carrying interest on most of the line on day one, whether or not you have found the next property. Size the line to the down payment you actually need, not to the largest number the equity allows.
The CFPB explains that HELOCs usually carry a variable rate and that some lines let you convert part of the balance to fixed. These lines do not offer that option. The CFPB’s HELOC brochure adds that payments can change even when you draw nothing more, and that an interest-only draw period means nothing goes toward principal. When repayment starts, the payment steps up because principal begins to amortize.
How Much Equity Do You Actually Have to Use?
A worked scenario shows the squeeze. Everything below is a modeled assumption, shown as percentages of property value.
Say you own a primary residence and owe 60% of its value on the first mortgage. You have a 720+ credit profile.
- At the 75% CLTV tier, the line can be at most 15% of the home’s value.
- At the 90% CLTV tier, available only at 720+ and only on lines up to $500,000, it can be at most 30% of value. A line above $500,000 caps at 75% CLTV.
Now suppose the equity sits in a rental instead. With the same 60% owed, the 70% investment ceiling leaves room for a line of only 10% of value. That is thin for a down payment.
Next, test the purchase side. On a purchase, most DSCR files land at 75% to 80% LTV, which means 20% to 25% down. Select programs reach 85% LTV with roughly a 700+ score, which means 15% down. The line has to cover that down payment plus closing costs and reserves. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Say the new rental clears about 1.2x on the DSCR ratio. That looks solid. But the line payment sits outside that ratio, and you owe it every month. Clearing 1.00 is not the same as positive cash flow, because repairs, vacancy, management, utilities, and capex all sit outside the calculation. A thin deal fails where those costs meet a second payment.
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. The strongest files have enough equity and enough rental coverage.
Where Does the General Rule Break?
Investment-property lines are tighter. The ceiling is 70% CLTV, the credit floor is 700, and the line caps at $500,000. A primary residence offers more room. Do not assume the rental you already own is the best collateral.
A fully borrowed down payment can fail. If the line funds the entire down payment, some purchase programs will not accept it. The DSCR loan looks normal, yet you now hold two liens on two properties. Ask the purchase lender how it treats borrowed funds before you open or draw.
Short-term rentals add variance. Occupancy swings, so reserves matter. For STR collateral, purchase leverage tops out at 75% LTV, and cash-out sits at 70%. 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. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The rotation plan depends on one event. Some investors draw on the line, buy, and plan to refinance after the property stabilizes. That works only if the refinance happens. A floating payment on the line can strain a long-term rental’s numbers while you wait. On a standard rental, a DSCR cash-out typically tops out around 75% LTV, with about 6 months of seasoning commonly expected. Lendmire’s walkthrough of investment-property equity lines covers the collateral side in more depth.
Your home stays at risk. The property securing the line stays at risk even if the new rental performs perfectly. If you cannot keep up with the line payment, including the higher payment once repayment begins, you can lose your home.
Entity ownership is a hard stop. LLC-titled properties cannot secure these lines.
Documentation differs. Some borrowers qualify on documented income under the applicable program, subject to lender guidelines. Lendmire’s explanation of how bank-statement equity lines work covers that route.
HELOC, DSCR Cash-Out, or Cash: How Do They Compare?
| Factor | HELOC | DSCR cash-out refinance | Cash saved |
|---|---|---|---|
| Collateral | Property you own | Existing rental | None |
| Existing first loan | Stays in place | Replaced | Untouched |
| Leverage cap | CLTV limits above | About 75% LTV, 70% for STR | Not applicable |
| Main risk | Second payment due | Loan resets | Liquidity tied up |
Each path buys a different thing. The line keeps a first mortgage you may want to hold. A cash-out refinance replaces the first loan and resets its terms. Cash avoids new debt but ties up liquidity. For help weighing them, the complete DSCR loans guide walks through the purchase side.
What Should You Ask Before You Open a Line?
Run this list past any lender before you apply:
- Does this program allow a line on an investment property, or only on a primary residence or second home?
- What CLTV applies to my credit tier and occupancy?
- How much of the line must I draw at closing?
- Does pricing float through both the draw and repayment periods?
- Which draw structure applies, and when does repayment begin?
- Can the title be held in my name or a revocable trust, and does my property type qualify?
- Is the property listed for sale, or was it recently listed?
- Which valuation applies at my line size?
Then check the purchase side. Ask whether the DSCR program accepts a seasoned draw secured by a different property. Ask whether it caps the borrowed share. Ask whether the draw can count toward both the down payment and reserves.
How Does a Broker Find the Right Fit?
Which lender fits depends on the file. The same equity can look very different at a 700 profile than at a 600 one. It can look different on a primary residence than on a rental, and different for a $100,000 line than for a $600,000 one.
A broker that shops multiple wholesale HELOC lenders can match the scenario to the program. That means checking occupancy, credit tier, draw structure, vesting, and property type against each lender’s guidelines before you apply. The same broker can then line up the DSCR purchase, where credit floors run from 620 in parts of the network to about 660 for most programs, with 700+ unlocking the strongest leverage tiers. Standard loan sizes run up to $3,000,000 on standard programs (smaller balances available through select lenders), and reserves commonly run around 6 months of PITIA, though they vary by lender, leverage, and loan size.
On the coverage side, 1.00 is where many select programs start. A separate select-lender path goes below 1.00, with leverage and terms adjusted. Stronger ratios generally open better leverage tiers.
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.
Frequently Asked Questions
Can I open a HELOC on the house I’m buying?
No. A line needs collateral you already own, so the equity has to come from another property. After you close on the new house and build equity in it, a line on that property becomes possible.
Will the HELOC payment lower my DSCR?
No. The DSCR ratio compares rent to the new property’s own payment, and your line payment is not part of it. The line still matters to your personal cash flow, so stress-test both payments through a vacancy before you draw.
Is HELOC interest tax deductible when I buy a rental?
Tax treatment can depend on how the funds are used and how the property is held; borrowers should keep clear records and speak with a qualified tax professional before relying on any deduction.
Do DSCR lenders accept borrowed down-payment funds?
It varies by program. Some accept a documented, seasoned draw secured by another property, and others cap the borrowed share or require part of the down payment in unborrowed cash. Ask the purchase lender before you draw.
Does a HELOC lower the down payment I need?
No. It changes where the down payment comes from but does not shrink it. A purchase still needs 15% to 25% down depending on the program, and reserves and closing costs come on top. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
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.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Benzinga – HELOC for a down payment
2. Yahoo Finance – Using a HELOC for a down payment
3. CFPB: What Is a Home Equity Line of Credit HELOC
This article is part of Lendmire’s HELOC & home equity loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Best HELOC Program to Buy Another House · Top HELOC Providers to Buy Another House · Banks That Offer a HELOC to Buy Another House · Best HELOC Program to Buy an Investment House · Top HELOC Providers to Buy an Investment House
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.