HELOC & Home Equity for Move-Up Buyers

Yes, and it's one of the most common ways my move-up buyers in West Michigan fund a bigger home or a second place near the water. Your equity is simply your home's value minus what you still owe, and you can tap it three main ways: a home equity line of credit, a home equity loan, or a cash-out refinance. Each turns paper equity into usable cash for a down payment or to buy outright. The right tool depends on your current mortgage rate, how much you need, and your timeline. I'm a Realtor, not a lender, so I'll always have you sit down with a loan officer to run real numbers, but I can help you frame the strategy before you ever fill out an application.

They all pull equity out, but they behave very differently. A HELOC is a revolving line of credit you draw from as needed, usually over a 10-year draw period, with a variable rate, so it's flexible if you don't know the exact amount yet. A home equity loan hands you one lump sum at a fixed rate with set monthly payments, which is predictable when you know your number. Both of those sit on top of your existing mortgage as a second loan. A cash-out refinance instead replaces your whole mortgage with a new, larger one and pays you the difference. The big trade-off: a refinance resets your first mortgage, so if you have a low rate you love, a HELOC or home equity loan lets you keep it. Your lender will price all three for your situation.

Lenders don't let you tap all of it. They look at combined loan-to-value, meaning everything you owe against the home divided by its value, and most cap that around 80% to 85% on a primary residence in 2026. So on a home worth $400,000 with a $200,000 balance, an 85% CLTV ceiling means roughly $140,000 of accessible equity before they'd stop. Vacation or second homes are tighter, often capped at 70% to 80%. Stronger credit and lower debt-to-income can stretch those limits, weaker profiles shrink them. These are general ranges, not a quote, so the only way to know your real number is a lender pulling your credit and ordering a value. I help you estimate your home's current market value first so that conversation starts from a realistic figure.

It's the dream scenario, move in on your own timeline without a rushed sale or a temporary rental, but it takes planning. The appeal here on the lakeshore is real: inventory in the towns and waterfront pockets people want can be thin, so being able to make a clean, non-contingent offer when the right home appears is a genuine edge. The catch is you may briefly carry two mortgages, and you need a financing bridge for the down payment until your current home sells. Buyers who pull this off usually have meaningful equity, stable income, and cash reserves. I'll give you an honest read on how fast your current home is likely to sell at a given price, because that timeline is the whole ballgame for this strategy.

A bridge loan is short-term financing that uses your current home's equity to fund the down payment and closing on your next home before the old one sells. You typically repay it within 6 to 12 months from your sale proceeds. Its superpower is letting you make a non-contingent offer, which sellers love in a competitive market. The cost is the trade-off: bridge loans carry higher rates than a normal mortgage and add fees like origination, appraisal, and title, so they can run into the thousands over the life of the loan. Lenders generally want strong equity in your current home to qualify, often in the range of 20% to 30%. It's a powerful tool when you have strong equity and a clear plan to sell, but it's not free, so your lender should walk you through the full cost before you commit.

You can, and plenty of buyers do exactly this to grab a vacation property near the lake or to upgrade without touching savings. You open a HELOC on your current home, draw what you need for the down payment, then pay it back, often from the proceeds when you eventually sell or refinance. The advantage over a bridge loan is flexibility, since you only draw and pay interest on what you actually use. Two cautions I always raise: a HELOC is usually a variable rate, so your payment can rise if rates move, and it's secured by your home, meaning a default puts that home at risk. You're also adding a payment on top of a new mortgage, so the budget has to genuinely work. A lender will confirm how much line you'd qualify for.

Second homes are held to a higher standard than your primary residence. With a conventional loan in 2026, you'll generally need at least 10% down on a vacation or second home, and that's assuming a strong overall file with good credit and low debt. If your credit is lower or your debt-to-income is higher, lenders often push that to 15% or even 20%. Expect them to also want cash reserves, frequently two to six months of payments set aside, plus stronger credit than a primary purchase requires. Note this is for a true second home you'll use yourself, not a rental, which has its own rules. Because requirements shift with your profile, a lender is the one to confirm your exact down payment, but knowing the 10% floor helps you plan how much equity to pull.

I want you to go in clear-eyed. First, any of these loans are secured by a home, so falling behind can put that property at foreclosure risk. Second, carrying two mortgages, even briefly, strains cash flow, and if your current home takes longer to sell than expected, that pressure grows. Third, HELOCs and bridge loans often carry variable rates, so payments can climb. Fourth, if local values dip, you could owe more than a home is worth. The way to manage all of this is conservative assumptions: a realistic sale price and timeline for your current home, a payment you can shoulder if the sale lags, and reserves for the unexpected. I'll be straight with you about your home's likely sale window so the plan is built on real numbers, not hope.

Sometimes, and the rules are stricter than people assume. Under current law through 2026, interest on a HELOC or home equity loan is only deductible if you use the funds to buy, build, or substantially improve the home that secures the loan. Using a HELOC purely for a down payment on a different property generally doesn't qualify, so don't count on a write-off for that move. There's also an overall cap: the IRS limits deductible mortgage interest to the first $750,000 of combined home loan debt for most filers, across your primary and second home. Tax situations are individual and these rules can change, so I never give tax advice myself, please confirm anything deduction-related with a CPA or tax professional before you make a decision based on it.