The Quick Read: A home equity line does not buy a new home by itself. It supplies the down payment and closing cash, while a separate purchase loan, usually a DSCR loan when the new home is a rental, pays for the property. The right line is the one whose collateral, size, and structure fit that purchase lender’s rules.
- Which property secures the line matters more than the brand of the line. Your credit and equity set the limits.
- Investment-property lines top out at 70% combined loan-to-value (CLTV) in the network. Primary-residence lines reach 90% only at a 720 credit profile.
- Most of the line gets drawn at closing, so size it to the cash you need, not to every dollar of equity.
- The purchase lender decides whether borrowed money counts toward the down payment, closing costs, and reserves.
Lendmire is a mortgage broker. It places lines and purchase loans through a network of wholesale lenders and is never the lender itself. What follows is how those programs actually work, step by step.
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.
What a HELOC Actually Does in a Purchase
A home equity line of credit (HELOC) is a revolving credit line secured by a property you already own. You borrow against equity, which is the home’s value minus what you still owe. The line holds cash. The new home is bought with a different loan.
Most lines have two phases. During the draw period you borrow and usually pay interest only. Experian says draw periods typically run five to 10 years, followed by a 20-year repayment period. Bankrate describes repayment as following a mortgage-style amortization schedule. Some plans end the draw with a balloon payment.
In practice, that makes the HELOC a down-payment tool. For a rental purchase, the sequence runs like this:
1. Choose which property secures the line.
2. Qualify for and open the line.
3. Draw the cash and keep a clean paper trail.
4. Apply for the purchase loan, which reviews the property’s rent, your credit, leverage, reserves, and where the cash came from.
5. Send the draw to title for the down payment and closing costs.
Skip step one and the rest tends to wobble.
Which Property Should Secure the Line?
Three choices exist, and the network treats each differently. Occupancy sets the ceiling, so the numbers below are shown by property type.
| Collateral | Max CLTV | Min credit | Max line |
|---|---|---|---|
| Primary residence | 90% at 720+; 75% up to $750K | 600 | $750K |
| Second home | 90% at 720+ | 640 | $500K |
| Investment property | 70% | 700 | $500K |
On a primary residence, the 90% tier applies only at 720+ and only up to $500,000. Other tiers step down: 85% at 660 to 700+, 80% at 640+, 70% at 620+, 60% at 600+. A line above $500,000 is available on a primary residence only, caps at 75% CLTV, and needs a full appraisal. It also needs a credit profile of 700 or better (720 on the longer-runway program, defined below).
These figures are typical guidelines across select wholesale programs. Every file is reviewed individually. They are not a commitment to lend.
Primary-residence collateral is the easiest route for most owners. Lines on a rental carry the tightest leverage and credit requirements in the network. Many retail lenders skip rentals as collateral altogether. That is one reason a broker who can shop several wholesale lenders helps here.
Two Draw Structures to Know
The network runs two line structures. Both are standalone lines that can sit in first or second lien position.
- The 5-year-draw program (the longer-runway structure): five years of interest-only draw, then 25 years of full amortization. Investment lines use this structure only.
- The 3-year-draw program: three years of interest-only draw, then 17 years of full amortization. It is offered on primary residences and second homes.
Both share three traits you should plan around. At least 75% of the line is drawn at closing. The line stays variable and never converts to fixed. And a quoted figure always belongs to its own program’s structure, so compare like with like.
The 75% rule is the detail new investors miss. A line is not a pool of cash you tap only when needed. If you need cash for a down payment and closing costs, open a line near that size. Opening a line sized to your full equity means paying interest on most of it from day one.
Lines run from $25,000 to $750,000. Draws after closing carry a $1,000 minimum on the 5-year-draw program.
How the Line Itself Is Underwritten
Line underwriting is personal. It looks at you, not at the rental you want to buy.
- Credit: The program floor is 600, using a single-bureau score keyed to the primary wage earner. The report can be no more than 90 days old at closing.
- Debt-to-income: Maximum 50%, and 45% for scores from 600 to 679. A ratio above 45% requires a 680 minimum. The calculation uses the interest-only payment on the maximum draw, so a bigger line weighs more on your ratio than the amount you draw.
- Valuation: Lines at or below $500,000 ordinarily run an automated valuation instead of a traditional appraisal. A higher CLTV may require a secondary valuation. Every line above $500,000 needs a full appraisal.
- Credit history: The longer-runway program wants two tradelines seasoned 12 months, or one seasoned 24. A bankruptcy needs 4 years of seasoning from discharge or dismissal.
- Eligible properties: Single-family, 2-4 units, PUDs, townhomes, and condominiums including non-warrantable ones. Manufactured homes, co-ops, condotels, log homes, and commercial, mixed-use, or agricultural properties are not eligible.
A few states add their own rules, such as waiting periods or limits on properties listed for sale. A broker checks those against your file before you apply.
Key Terms Defined
CLTV: Combined loan-to-value, meaning your first mortgage plus the line, divided by the home’s value.
Draw period: The stretch when you can borrow from the line, usually paying interest only.
Repayment period: The phase after the draw ends, when borrowing stops and principal comes due.
DSCR: Debt service coverage ratio, which compares a rental’s monthly rent to its monthly principal, interest, taxes, insurance, and association dues (PITIA).
Seasoning: The waiting period or age a lender wants on an account, a credit line, or a property before it counts.
Source of funds: The documented origin of your down payment and closing money.
How the Purchase Lender Treats Borrowed Cash
The line gets you the cash. The purchase lender decides whether the cash counts. Across the programs we place files with, borrowed funds are often accepted for the down payment and closing costs. They are commonly excluded from reserves, and some programs cap the borrowed share. The answer can differ for each of the three buckets, so ask about all three.
Bankrate notes that not every lender allows home-equity funds for a down payment when a mortgage is also taken on the new property. Expect questions. A clean paper trail, meaning the line agreement, the draw, and the transfer to title, answers most of them.
The DSCR Side of the Purchase
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. The property qualifies primarily on rental income covering the payment, subject to lender guidelines. Our complete DSCR loans guide walks through the full picture.
For the HELOC-funded buyer, these are the ranges that matter:
- Purchase leverage: Most files land at 75% to 80% LTV on a purchase, meaning 20% to 25% down. Select high-leverage programs reach 85% LTV (15% down) with roughly a 700+ score.
- Coverage: 1.00 is where many select programs start. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted.
- Credit: A 620 floor exists in parts of the network. Most programs want around 660, and 700+ opens the strongest leverage tiers.
- Reserves: They vary by lender, leverage, loan size, and transaction, commonly around 6 months of PITIA. Loans above $1,500,000 typically step up to about 9 months.
- Loan size: up to $3,000,000 on standard programs (smaller balances available through select lenders).
A bigger down payment can lift the coverage ratio. It never erases leverage caps, credit floors, or reserve rules. The strongest files clear two tests: enough equity and enough rent.
Clearing 1.00 also does not mean positive cash flow. DSCR compares rent to PITIA only. Repairs, vacancy, management, utilities, and capital expenses sit outside the calculation. Your line payment sits outside it too. Rent can pass the test while the HELOC payment still drains your pocket.
A Worked Example in Percentages
Say you own a primary residence with a first mortgage equal to about half its value. Your credit sits around 700. On the primary-residence table, that profile allows up to 85% CLTV on a line up to $500,000. Roughly 35% of the home’s value is theoretically available.
You do not take all of it. You plan to buy a rental at 75% LTV, so you need 25% down plus closing costs. You open a line sized to that cash. Since at least 75% is drawn at closing, a line sized to your actual need keeps interest cost honest. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The purchase lender then reviews the rental. Say rent covers the full monthly obligation at roughly 1.2x. That is a solid ratio for most programs. The lender also reviews your credit, reserves, and the source of your down payment. If reserves cannot come from borrowed money, they come from your savings. Plan that before you draw.
Run the same sequence on a second line against your rental instead, and the ceiling drops to 70% CLTV with a 700 minimum. That is the cost of using a rental as collateral.
Where the General Rule Breaks
An LLC cannot hold title. Lines require title held by you individually or in a revocable living trust. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts are out. A rental already deeded to an LLC needs a vesting change, or a DSCR cash-out instead. This is the sharpest difference from a DSCR loan.
Converting a primary home to a rental after opening a line. The occupancy statements in your line documents govern. Moving out and renting the home is a different risk from what you declared. Do not build a plan on it without asking your broker and reading your documents first.
Fully funding the purchase. A HELOC rarely covers the whole price. Even when it could, the purchase then sits on variable-rate debt, and the purchase lender may not accept it all as your cash.
The balloon or payment jump. CFPB guidance explains that monthly payments are often significantly higher once repayment starts. Some plans let the whole balance come due. Model the repayment phase before the draw phase.
The debt stack. Bankrate points out that you end up carrying your existing mortgage, the HELOC, and the new mortgage. If you cannot pay, your primary home backs the line.
BRRRR. Buy, rehab, rent, refinance, repeat. A line can fund a purchase and rehab, with a refinance repaying it. It works only if the appraisal and the rent cooperate. A refinance that comes in short leaves you holding both loans.
Exposure limits. A borrower can hold three lines. Combined exposure caps at $2,000,000 on the 3-year-draw program and $750,000 on the longer-runway program. A borrower owning more than 15 financed properties is not eligible.
Ineligible property types. Manufactured homes, log homes, and barndominiums are not offered in the network’s DSCR programs.
Sequencing: Open the Line First
Open the line before you shop seriously for the rental, and well before you apply for the purchase loan. A new line changes your credit, your debt picture, and your documentation. The purchase lender will see it.
A tidy order looks like this:
1. Check your credit profile and equity against the table above.
2. Decide the cash you need for down payment and closing costs.
3. Open and fund a line sized near that need.
4. Season and document the funds.
5. Make offers.
6. Apply for the purchase loan with the paper trail ready.
So, What Is the Best Program for Your Situation?
It depends on four things: the collateral you can offer, your credit tier, the cash you actually need, and how the purchase lender treats borrowed funds. A strong primary-residence owner at 720+ gets the widest range. An owner who can only offer a rental gets a smaller, tighter line.
If you are weighing a line against a rental you already own, see Lendmire’s piece Best Investment Property HELOC Program to Buy Another Home.
A broker’s real advantage is comparison. Lenders in the network differ on credit tiers, draw structure, and property types. Matching your file to the program that fits, before you apply, avoids a decline you did not need.
Frequently Asked Questions
Can a HELOC cover the entire purchase of a new home?
Rarely. A line is sized by your equity, credit, and CLTV caps, and the purchase lender still expects a down payment from acceptable sources. Most investors use the line for the down payment and closing costs and finance the rest with a DSCR or other purchase loan. Funding everything with a variable line also loads the purchase onto debt that can reprice.
Does the purchase lender accept HELOC money as a down payment?
Often yes for the down payment and closing costs, subject to lender guidelines. Borrowed funds are commonly excluded from reserves, and some programs cap the borrowed share. Ask about each bucket separately, and document the draw from the line to title.
Can I use a line on my rental to buy another rental?
Possibly. Investment-property lines in the network cap at 70% CLTV with a 700 minimum credit score and a $500,000 maximum line, and they use the 5-year-draw structure only. The property must be held in your name or a revocable trust, not an LLC.
What happens to the line when the draw period ends?
Borrowing stops and principal repayment begins, so the payment often rises sharply. On the network’s lines, the 3-year-draw program moves to 17 years of repayment and the 5-year-draw program to 25 years. Pricing stays variable throughout. Run the repayment phase before you draw.
Should I use a HELOC or a DSCR cash-out refinance for the down payment?
Each suits a different file. A line keeps your existing first mortgage in place. A cash-out refinance replaces the loan on a rental you already own and typically tops out around 75% LTV with about six months of seasoning. A broker can compare both against your goals.
Next Steps
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. Lendmire brokers DSCR investor loans across 41 markets, including Washington, D.C. Home equity lines are offered in its 16 full-service states, a narrower footprint. Every program is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
The investors who do this well treat the line as a short, sized tool, not a bank account.
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. Experian
2. Bankrate – HELOC draw period ends
3. Bankrate – Using home equity to buy a second home
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 Investment Property HELOC Program for a Vacation Home Down Payment · Best Investment Property HELOC Program on an Inherited Rental Property · Best HELOC Program to Cover the Down Payment on a Home
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.