Can you use home equity to buy another house? Yes. Most homeowners do it through one of three tools: a home equity loan, a home equity line of credit (HELOC), or a cash-out refinance. Each one lets you borrow against the value you’ve built in your current home and put that cash toward a down payment, closing costs, or, if your equity is large enough, the full purchase price of a second home, vacation property, or rental.
Essentially, you’re taking on new debt, and your current home is the collateral behind it.
Key Takeaways
- →You can use home equity to buy another house through a home equity loan, HELOC, or cash-out refinance.
- →Lenders typically cap borrowing at 75% to 85% of your home's appraised value, minus what you still owe.
- →Your equity might cover just the down payment, or the entire purchase, depending on how much you've built up.
- →The biggest risk is stacking your original mortgage with a new equity loan and a second mortgage, all at once.
Table of Contents
How much equity do you actually have?
Home equity is the difference between what your home is worth and what you still owe on it. If your home appraises at $450,000 and your mortgage balance is $280,000, you’re sitting on $170,000 in equity.
That figure only becomes real money once a lender confirms it with an appraisal, so it’s worth getting a realistic estimate before you start shopping for financing. New Silver’s home value estimator is a fast way to get a ballpark number before you involve a lender.
Most lenders will let you borrow against 75% to 85% of your home’s appraised value, minus whatever you still owe. On the example above, 80% of $450,000 is $360,000. Subtract the $280,000 mortgage balance, and you’re looking at roughly $80,000 of usable equity, before fees.
Three ways to borrow against your equity
A home equity loan, a HELOC, and a cash-out refinance all tap the same pool of equity, but they get you the money in different ways, with different repayment terms and different effects on your existing mortgage. Here’s how they stack up.
| Feature | Home Equity Loan | HELOC | Cash-Out Refinance |
|---|---|---|---|
| How you get the money | One lump sum at closing | A revolving credit line you draw from as needed | One lump sum, funded through a new, larger mortgage |
| Interest rate | Usually fixed | Usually variable, though some lenders offer fixed-rate conversion | Fixed or variable, set at the time of refinance |
| What happens to your first mortgage | Stays untouched; this is a second loan on top of it | Stays untouched; this is a second loan on top of it | Replaced entirely by the new mortgage |
| Repayment | Fixed monthly payments from day one | Interest-only during the draw period, then principal and interest | Fixed monthly payment on the new, larger loan balance |
| Typical closing costs | 2% to 5% of the loan amount | Often lower, sometimes waived | 2% to 5% of the new loan amount |
| Best fit | A known, one-time cost, like a down payment | Ongoing or uncertain funding needs | Homeowners whose current rate is at or above today's rates |
Down payment, or the whole purchase?
This is where a lot of the confusion sits. Whether your equity can cover just the down payment or the entire purchase depends on three things: how much equity you have, your lender’s loan-to-value limits, and the price of the home you’re buying.
If your equity is modest relative to the new home’s price, it will typically fund part of the purchase, most often the down payment and closing costs, while a new mortgage covers the rest. If your equity is large, some homeowners use it to buy a smaller second property outright, with no new mortgage involved at all. Most people land somewhere in between: enough equity to make a strong down payment and skip private mortgage insurance, but still financing the bulk of the new home separately.
What lenders check before approving you
Lenders look at more than your equity balance. Before approving a home equity loan or HELOC, most will review:
- Credit score. Many lenders want to see 680 or higher, though requirements vary.
- Debt-to-income ratio (DTI). Most cap this around 43%, including the new payment you’re about to take on.
- Remaining mortgage balance. This determines how much equity is actually available to borrow against.
- Equity cushion. Lenders generally want you to retain at least 15% to 20% equity in the home after the new loan.
- Appraisal outcome. The appraised value, not your own estimate, sets the ceiling on what you can borrow.
Your DTI is worth watching closely here. Adding a home equity loan or HELOC payment raises this ratio immediately, and a high DTI can then make it harder to qualify for the mortgage on the new property itself. The CFPB’s HELOC guidance is a useful reference if you want the full list of lender considerations.
The risk: multiple mortgage payments
The biggest risk isn’t the interest rate. It’s the math of carrying several loans at once.
If you keep your current home and buy another one using equity financing, you could end up responsible for three separate payments every month: the mortgage on your original home, the home equity loan or HELOC you used to fund the down payment, and the new mortgage on the second property. That’s a meaningful jump in fixed monthly obligations, and it only works if your income is stable enough to absorb it.
There’s also the collateral risk. Your current home secures the equity loan or HELOC. Fall behind on payments, and you risk foreclosure on the home you already own, not just the new one.
Is this the right move for you?
Is Using Home Equity to Buy Another House Right for You?
Ranges based on common lender guidelines. Individual requirements vary.
A worked example
Numbers make this easier to picture. Say your home is worth $500,000 and you owe $300,000 on your mortgage.
- Equity available: $500,000 minus $300,000 equals $200,000
- Maximum borrowable at 80% LTV: 80% of $500,000 is $400,000, minus the $300,000 you owe, leaves $100,000
- Realistic amount after lender limits and fees: many lenders will approve somewhat less than the maximum, so plan closer to $80,000 to $90,000
- What that could fund: on a $350,000 second home, an $80,000 home equity loan covers roughly a 23% down payment, comfortably clearing the 20% threshold that helps you avoid PMI
That $80,000 doesn’t disappear once you use it, of course. It shows up as a new monthly payment alongside whatever you take on for the second property.
Other ways to finance a second property
Skip the home equity route entirely
New Silver lends against the deal itself, not your primary residence.
DSCR Loan
30-year fixed term, qualifies on the property's rental income, not your personal income See requirements →Fix & Flip Loan
Funds the purchase and renovation, close in as little as 7 days See requirements →Construction Loan
Built for ground-up residential builds, up to 18-month terms See requirements →Hard money loans
Short-term, asset-based loans from private lenders, generally. Higher rates, faster closings, shorter terms than a conventional mortgage.
Seller financing
The seller acts as the lender and you repay them directly. Terms are negotiable and closing can move faster, but rates and down payments tend to run higher.
Peer-to-peer lending
Personal loans funded by individual investors, no collateral required. Rates depend heavily on your credit, and loan amounts are usually smaller than a mortgage lender offers.
Saving and waiting
The slowest option, and the only one that adds zero new debt. Worth considering if your current equity or income doesn't yet support a comfortable second payment.
