Using a HELOC for Investment Property Down Payments

Yes, you can use a home equity line of credit (HELOC) on your home to pay the down payment on a rental. Fannie Mae accepts money borrowed against real estate you own for the down payment, closing costs, and reserves on an investment property. The rental lender counts the HELOC payment as a monthly debt when it checks whether you can afford the new loan. HELOC rates are typically variable and often tied to the prime rate, which was 7.00% on October 22, 2026, so the cost can rise while your home secures the debt.

For the full list of what lenders check on a rental loan, see tips for getting approved for an investment property mortgage.

What the rental lender requires when the down payment is borrowed

Fannie Mae's rule on borrowed funds secured by an asset lists real estate as acceptable collateral. The lender for the rental must document three things:

1. The HELOC's terms, usually from the HELOC agreement or a recent statement.
2. That the HELOC lender is not a party to the sale, such as the seller or the real estate agent.
3. That the money moved to you, for example a statement showing the draw and the deposit or the wire to the closing agent.

Fannie Mae's minimum down payment on a rental is 15% for one unit and 25% for 2 to 4 units. Down payment requirements for investment properties covers which other sources of cash lenders accept.

How the HELOC payment counts in your DTI

Your debt-to-income ratio (DTI) is your monthly debt payments divided by your gross monthly income. Fannie Mae requires an investment property loan to be approved through its automated system, Desktop Underwriter, which allows a DTI of up to 50%. The HELOC payment goes into the debt total. If the HELOC does not require a payment yet, the lender must calculate an equivalent payment, so a draw cannot be left out.

Worked example, with assumed figures you should replace with your own:

• Gross monthly income: $12,000. Existing debts: your home's payment of $1,800, including taxes and insurance, and a car payment of $400.
• HELOC draw: $75,000 for 25% down on a $300,000 rental. At an assumed 7.75% (prime plus 0.75 point), the interest-only payment is $75,000 x 7.75% / 12 = $484.
• New rental loan: $225,000 at an assumed 7.875% for 30 years, $1,631 principal and interest plus $350 for taxes and insurance, a $1,981 payment.
• Rent: $2,500. For a purchase, Fannie Mae requires the appraiser's rent documentation (Form 1007 or Form 1025, as applicable), plus a fully signed lease if one transfers to you. The lender must also evaluate the lease rent against market rents. For a purchase, Fannie Mae counts 75% of that gross rent, $1,875, and subtracts the rental's payment. The result, minus $106, is added to your debts.

If the rental's rent produced a positive result instead, you could use it in full only with at least 12 months of experience managing rentals; otherwise it can only offset the rental's own payment. See managing debt-to-income ratio as a real estate investor.

Combined LTV limits and variable-rate risk on your home

The HELOC lender, not the rental lender, sets how much you can borrow. It applies a maximum combined loan-to-value ratio (CLTV): your first mortgage plus the full credit line, divided by the home's appraised value. With a $500,000 home, $250,000 owed, and an 80% CLTV limit, the largest line is $500,000 x 80% - $250,000 = $150,000. Ask each HELOC lender for its CLTV limit in writing.

The risks to plan for, all described in the CFPB's HELOC booklet:

• The rate moves. A variable HELOC rate is an index, such as the prime rate, plus a margin. Some start with a discounted rate for a few months. In the example, a 2-point rise takes the interest-only payment from $484 to $609.
• The payment rises when the draw period ends. You then repay principal, often over 10 or 15 years, or owe the full balance at once. Repaying $75,000 over 15 years at 7.75% costs $706 a month.
• The lender can freeze or cut the line if your home's value falls or your finances worsen. Draw what you need for closing rather than counting on the line for later repairs.
• The balance is usually due when you sell your home, and some HELOC agreements prohibit renting your home out. Read the agreement before you plan to move out and keep the house as a rental.

The rental lender also wants cash reserves after closing: 6 months of the new rental's payment through Fannie Mae's automated system, plus reserves for other financed properties. Cash reserves for investors covers how much to hold beyond the minimum.

How the interest is treated for taxes

IRS Publication 936 says interest on a loan secured by your home is not deductible as home mortgage interest when the money is not used to buy, build, or substantially improve that home. Interest is instead allocated by how you spend the money. Interest on HELOC money used to buy a rental is rental interest, reported on Schedule E with the property's other expenses.

To keep the allocation clean, draw only the amount for the purchase and send it straight to the closing agent or to an account used only for the rental. If part of the draw pays personal expenses, the interest on that part is not deductible. Keep the HELOC statement and the rental's Closing Disclosure with your tax records.

When a cash-out refinance or a fixed-rate home equity loan is better

Here is the same $75,000 raised three ways, assuming your home's $250,000 first mortgage is at 3.0% with 25 years left and a $1,186 payment:

The table leaves out one-time costs. A cash-out refinance has closing costs on the whole new loan, so netting $75,000 takes a larger loan or cash from elsewhere. A HELOC or home equity loan can carry appraisal, application, and closing fees, and some HELOCs add an annual fee or a fee for closing the line early. Ask each lender for these in writing.

How to choose:

1. Keep a low first-mortgage rate. In the example, a home loan at 3.0% with 25 years left makes the cash-out refinance the most expensive option each month. Run the comparison with your own balance and years remaining, because a loan with few years left has a higher payment to start from. Fannie Mae caps that refinance at 80% LTV on a one-unit home.
2. Pick the HELOC for short-term use. It fits when you can repay within a few years. If you plan to use a later rental refinance, the lender must approve a loan within its LTV limit that leaves enough cash to repay the HELOC after paying off the rental mortgage and refinancing costs. Check for an early-closure fee before you choose it. See refinancing an investment property.
3. Pick the fixed home equity loan for long-term use. The payment is higher at the start but cannot rise, which makes the rental's cash flow easier to plan.
4. Use equity in an existing rental first if you have it. A cash-out refinance on that property keeps your home out of the deal.

Whether the borrowed down payment improves your return at all depends on the rental's income compared with the cost of both loans. The power of leverage in real estate investing shows that test.