Using a HELOC to buy a second home
Your primary home has equity and a low rate. A line against it can fund the down payment on a vacation home, or the whole purchase, without touching your first mortgage.
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Can you use a HELOC to buy a second home?
Yes, you can use a HELOC on your primary home to buy a second home, and it's one of the cheapest ways to fund the down payment. Lenders accept the draw if it's documented. The second-home lender counts the HELOC payment in your debt-to-income ratio, so you must qualify for three payments. Of the 9,601 HELOCs Shawn Way's team funded from January 2023 to October 2026, 90% were on primary homes, 3% on investment properties and 1% on second homes.
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Three ways to use the line
- Down payment only. Draw what you need for the down payment and closing costs, then finance the rest with a second-home mortgage. This is the most common setup.
- All-cash offer, then refinance. If your line is large enough, buy with cash to win a competitive listing, then place a mortgage on the new home afterward and pay the line back down. Conventional rules allow financing a home you just bought with cash if the purchase funds are documented, including a HELOC draw.
- Bridge until you sell something else. Draw now and repay from a bonus, an investment sale or the sale of another property.
Use a free calculator, or get your HELOC rate from Shawn.
How the second-home lender sees the HELOC
Borrowed money normally can't be used for a down payment, but funds borrowed against another property you own are an exception. Expect the lender to ask for:
- The HELOC agreement or a statement showing the line and its terms
- A bank statement showing the draw landing in your account
- The HELOC's monthly payment, which counts as a debt. If you haven't drawn yet, some lenders use a payment on the full amount you plan to draw.
Open the line before you go under contract. A HELOC takes days to a few weeks, and you don't want the down payment waiting on it.
What counts as a second home
Lenders price a second home better than a rental, so the definition matters. You must occupy it for part of the year, it should be a reasonable distance from your primary home, and it can't be run as a full-time rental or under a rental-pool agreement that limits your use. If you plan to rent it most of the year, it's an investment property, with different down payment and rate rules.
Example
A couple owns a $950,000 home with $350,000 left on a 3% mortgage. At an 80% combined loan-to-value limit, a line of up to $410,000 is possible. They draw $90,000 for the down payment and closing costs on a mountain cabin. At 7.75% APR, interest on $90,000 runs about $581 a month during the draw period. They plan to pay the line down with year-end bonuses over three years, leaving the 3% mortgage untouched.
Taxes
Under current federal law, HELOC interest is deductible only when the money buys, builds or substantially improves the home that secures the line. Drawing on your primary home to buy a different home generally doesn't qualify. Interest on the new second-home mortgage itself can be deductible within the overall limits. Ask your tax preparer before you rely on any deduction. HELOC interest and taxes.
Alternatives to compare
| Option | Good when | Watch out for |
|---|---|---|
| HELOC on primary home | Your first mortgage rate is low and you'll repay the draw within a few years | Variable rate; three payments to qualify for |
| Cash-out refinance of primary home | Your current rate is close to today's | Gives up a low rate on the whole balance |
| Larger down payment from savings | You have the cash and want one less loan | Draining reserves; lenders want some left |
| HELOC on the second home later | You'll build equity there | Fewer lenders offer lines on second homes, at lower limits |
Also asked
Can I use a HELOC for a second home's entire purchase price?
Yes, if your HELOC is large enough you can buy the second home with cash, then often place a mortgage on it afterward and pay the line down. Make sure you can carry the full HELOC payment until you do.
Will the second-home lender want my HELOC closed?
No. The second-home lender doesn't require you to close the HELOC on your primary home. The line stays open, and the lender counts its monthly payment as a debt in your debt-to-income ratio.
Can I get a HELOC on the vacation home instead?
Sometimes. Some lenders offer HELOCs on second homes and vacation homes, usually with lower borrowing limits and higher rates than a line on your primary home. See HELOCs on a second home.
Can I rent out a second home bought with a HELOC?
Usually, if it's occasional. Renting now and then is fine for a second home, but if renting is the main purpose, lenders treat the property as an investment property, with different down payment and rate rules. See using a HELOC to buy a rental.
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Sources
Official sources behind this guide.
- What is the difference between a home equity loan and a HELOC? · Consumer Financial Protection Bureau
- What you should know about home equity lines of credit (booklet, PDF) · Consumer Financial Protection Bureau
- Publication 936, Home Mortgage Interest Deduction · Internal Revenue Service
- Regulation Z §1026.40: Requirements for home equity plans · Consumer Financial Protection Bureau
- Regulation Z §1026.15: Right of rescission · Consumer Financial Protection Bureau