Using a HELOC for the Down Payment on Your Next Home

Short answer: yes — drawing the down payment from a HELOC on your current home is one of the most common ways buyers write a non-contingent offer on the next one. The line needs to be open before you need the money, the new lender will count its payment in your qualifying, and if the current home is the one you're selling, the line is paid off at closing. Done in that order, it's routine.

The buyer who can close without selling first has a real advantage in almost every market. The question is where the cash comes from. For most homeowners the answer is sitting in the house they already own, and a HELOC is the fastest, cheapest way to get at it without disturbing their first mortgage.

Why this works

Your equity is the difference between what the home is worth and what you owe. A HELOC lets you borrow a portion of it as a line secured by that home. You draw what the new purchase needs — the down payment, closing costs, a cushion — and the rest of your finances stay as they were. Your first mortgage keeps its rate. When the current home sells, the line is paid from the proceeds. If you're keeping the current home, the line simply stays in place and you pay it down on the fixed-rate, fully amortized term you chose. Either way there's no prepayment penalty, so paying it off from sale proceeds costs nothing extra.

The order of operations

• 1. Open the line before you shop. Size it to the down payment plus closing costs plus a margin. Pre-qualify with a soft pull, verify electronically, fund in as little as 5 days. Now you know exactly what you can write.
• 2. Get pre-approved for the new mortgage with the line disclosed. The new lender counts the HELOC payment in your debt-to-income ratio. Do this second so the pre-approval reflects reality.
• 3. Write the offer without a home-sale contingency. That's the whole point. Sellers prefer it and it often wins against higher contingent offers.
• 4. Close on the new home using the drawn funds. Keep the draw documented; the new lender will want to see where the money came from.
• 5. Sell the old home on your timeline. The line is paid off at closing from the proceeds.

Sizing the line

Draw for the purchase, not for comfort. You pay interest on the balance you carry, and every dollar drawn is a dollar the new lender counts against you. The calculator shows the ceiling; the right size is the down payment, closing costs, and a modest reserve. Most people are surprised how much less than the maximum that is.

If your current home is already listed

This is where most banks stop you: once a home is on the MLS, they decline the HELOC, because a listed home will pay the line off in months and they want a multi-year relationship. This program funds a listed home in 26 states (not Texas), with a $400,000 cap and its own rules. The full detail is in can you get a HELOC while your home is listed and using equity from a listed home for the down payment.

Where it goes wrong

• Opening the line after going under contract. It's possible, but you've added a five-day process to a purchase timeline that's already tight, and any hiccup lands on your closing date.
• Forgetting the new lender counts it. A line sized to the maximum can push your debt-to-income past what the new mortgage allows. Size it to the need.
• Carrying two homes longer than planned. If the old home takes months to sell, you're paying the first mortgage, the line, and the new mortgage. Be honest about the market before you commit, and keep the line small enough that the overlap is survivable. The alternatives guide compares the other ways to bridge.

Common questions

Planning the next purchase?

Tell us the price range and the timeline and we'll size the line, sequence it with the new mortgage, and tell you what the overlap would cost if the old home takes longer to sell.