Overview

Buying another property while you still carry a mortgage is common and doable. Lenders evaluate the combined debt load, available equity, credit history, and income. In my practice advising homeowners and investors, the best choice usually balances cost, speed, and risk—especially the risk of putting your primary residence at stake.

How these options work (quick summary)

  • HELOC (home equity line of credit): A revolving credit line secured by your home. You borrow as needed, pay interest on the balance, and often face a variable rate. Good for staged purchases or covering a down payment. See our deep dive on using HELOCs for investment properties for details and risks: Using a HELOC to Finance Investment Property: Risks and Best Practices.
  • Home equity loan (second mortgage): Fixed amount, fixed rate, predictable monthly payments. Best when you need a lump sum.
  • Second mortgage: Broad category covering HELOCs and home equity loans; lenders will judge combined loan‑to‑value (CLTV).
  • Bridge loan: Short‑term loan that fills the timing gap between buying and selling; typically pricier but fast.
  • Wrap‑around mortgage / seller financing: Seller keeps an existing mortgage while accepting payments that cover both the old and new financing—useful when bank financing is limited.
  • Cash‑out refinance: Replaces the existing mortgage with a larger loan and gives you the difference in cash. Compare this carefully to HELOC options (see: HELOC vs Cash‑Out Refinance: Pros, Cons, and Costs).

Eligibility and common lender requirements

  • Equity / CLTV: Lenders typically cap combined LTV around 75–85% depending on loan type and borrower profile. Example: a $400,000 home with a $250,000 mortgage and an 80% CLTV limit yields usable cash of about $70,000 (0.8 × $400,000 − $250,000).
  • Debt‑to‑income (DTI): Many lenders prefer DTI at or below roughly 43%, though some programs accept higher ratios; check individual underwriting rules (Consumer Financial Protection Bureau). (CFPB)
  • Credit score and reserves: Good credit and 2–6 months of reserves improve approval odds.
  • Subordination: If you add a second loan, the lender may require the first mortgage holder to agree to a subordinate lien position—see our note on subordination: How Loan Subordination Affects Second Mortgages and HELOCs.

Practical examples

  • Down‑payment bridge with a HELOC: You want to buy a rental for $200,000 and need $40,000 down. Your primary home is worth $400,000 with $250,000 owed. A HELOC that keeps CLTV ≤80% can provide about $70,000, covering the down payment without touching the first mortgage.
  • Bridge loan for time‑sensitive purchases: If you must close before selling your current home, a short bridge loan funds the purchase but should have an exit plan (sale proceeds or refinancing).

Costs, tax treatment, and interest risk

  • Interest and fees: HELOCs often have lower upfront fees but variable rates. Home equity loans cost more upfront but give predictable payments.
  • Tax considerations: Mortgage and HELOC interest may be deductible if funds are used to buy, build, or substantially improve the property securing the loan; refer to current IRS guidance on home mortgage interest (irs.gov) before relying on tax benefits.

Common mistakes and how to avoid them

  • Underestimating total monthly payments: Add the new payment to your existing mortgage and expenses to test true affordability.
  • Ignoring rate risk: Variable HELOCs or bridge loans can become costly if rates spike—consider conversion to a fixed rate or a refinance plan.
  • Skipping subordination checks: Failing to confirm lien order can block second‑loan funding or trigger higher costs.

Decision checklist (quick)

  • Do you have sufficient usable equity (CLTV test)?
  • Will the new monthly payment keep your DTI in lender limits?
  • Do you have reserves to cover vacancy, repairs, or rate increases?
  • Is access speed (bridge or HELOC) more important than long‑term cost (cash‑out refinance)?

Professional tips

  1. Document the exit plan: sale, refinance, rental income, or savings. Lenders want to see how you’ll repay.
  2. Shop both banks and non‑bank lenders: pricing and underwriting on HELOCs and bridge loans varies widely.
  3. Consider staged borrowing: use a HELOC for down payment, then refinance only if rates fall or you need term stability.
  4. Get pre‑approval for the new mortgage while maintaining up‑to‑date statements for your current loan—this makes underwriting smoother.

Frequently asked questions

Q: Can using a HELOC or second mortgage make it harder to get a new mortgage?
A: Lenders include the new obligation when assessing CLTV and DTI. If those metrics stay within underwriting limits and you meet credit and reserve requirements, you can still qualify.

Q: Is a cash‑out refinance better than a HELOC?
A: It depends. Cash‑out replaces the first mortgage and may give lower long‑term rates but increases closing costs and can raise your rate if market rates are higher than your existing loan. See our comparison: HELOC vs Cash‑Out Refinance: Pros, Cons, and Costs.

Authoritative resources

  • Consumer Financial Protection Bureau (CFPB) — guides on HELOCs, mortgages, and borrower protections (consumerfinance.gov).
  • U.S. Department of Housing and Urban Development (HUD) — programs and FHA rules (hud.gov).
  • National Association of Realtors (NAR) — market and investment guidance (nar.realtor).
  • Internal Revenue Service — rules on mortgage interest and tax treatment (irs.gov).

Disclaimer

This article is educational and reflects best practices as of 2025. It does not substitute for personalized legal, tax or financial advice. Consult a mortgage lender, CPA, or certified financial planner to evaluate options for your specific situation.