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I recently moved to Boston where housing is very expensive compared to where I lived before. Buying a house requires a lot of money as down payment, and I am still short of $30000-$40000. But I have a house which is now a rental house and I can apply for home equity line of credit from it. Can I use that money to make a down payment on a second house in Boston?

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  • That's not really a down payment, just a different kind of debt.
    – chepner
    Oct 11, 2019 at 22:29
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    You must have already thought, "sell the rental". What's the justification for keeping it? And is it a good justification, seeing that you're a long-distance landlord?
    – RonJohn
    Oct 11, 2019 at 23:49

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Can you ? Yes.... probably. It depends on the equity you have in the existing house and the down payment you need for the new house and your debt to income ratio and a few other things.

Should you ? Probably not. HELOC likely has far higher interest than a mortgage would. There's a reason why banks don't want you to get a loan for a down payment.

Alternative: Cash-out refinance the existing house, then apply for a new mortgage (and/or wait 6 months+ in between). If you can't get enough money from the equity in your current home to make the down payment you likely wouldn't get approved after the HELOC either.

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  • What does this mean specifically? (Cash-out refinance the existing house, then apply for a new mortgage (and/or wait 6 months+ in between).)
    – fhcat
    Oct 16, 2019 at 17:32
  • You refinance the existing house (get a new mortgage) for 80% of the value of the house, get the remainder in cash. Then (since you just opened a new mortgage account and drastically increased your debt) you check your credit and see if you can get a mortgage for the house you want to buy. If needed you wait 6 months or a year to improve your credit.
    – xyious
    Oct 16, 2019 at 19:56
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Yes you can raise funds for down payment of new house by obtaining finance against your existing property. But you need to look at your Debt Burden. You may face difficulty in obtaining required credit limit for new house finance once you avail finance against your existing property.

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