If you’re a homeowner looking to purchase a new property, you may be able to use a home equity line of credit (HELOC) as a down payment. In order for this to work, your current property must have a significant amount of equity (usually at least $20,000 worth).

If you are planning to sell your current property, you should apply for a HELOC before putting it on the market. A lead time of six months or so will help ensure that the lender will approve your application. If you apply for a HELOC when your property is already listed for sale, lenders will be leery of giving you credit.

When the loan on your new home is in closing, you may make your HELOC down payment by taking out a typical withdrawal. As soon as the money is withdrawn, it will start accruing interest.

If you sell your original property, you will need to pay back the money owed on the HELOC immediately. Because HELOC limits are set based on property values, this should not be a problem.

For homeowners who have no cash reserves, the HELOC down payment can be an easy way to purchase a new home. However, it is important to remember that HELOCs have variable interest rates - your monthly bill will change and may increase dramatically. When deciding on a home, remember to include potential HELOC costs in your calculations.

See Also:

5 Financially Sound Ways to Use Your HELOC

How a HELOC Works

Tags | Heloc, home equity line of credit, home equity loan