How To Purchase A New Home Using A 1st Lien HELOC

Updated as of January 21, 2024 |

Yes, you CAN purchase a home with a First Lien HELOC, here’s how.

Good to Know

Your credit score is a significant factor in any investment. The definition of a “good” credit score varies from lender to lender. However, scores in the high 680s-700s are a standard benchmark for borrowers looking to buy a house.

Raising your credit score before applying for a first lien HELOC may increase your chances of pre-approval.

Purchasing a primary residence is an exciting investment, but it takes some smart financial steps to get there. If you’re wondering how to buy a house, you’re not alone in looking for ways to finance your purchase. In fact, 87% of homebuyers financed the purchase of their house in 2020. Using a first lien HELOC can help you manage the financial commitment. First, you’ll need to get approved. Here’s what the process looks like and what you can do to get started.

The Approval Process to Buy a House

A first lien HELOC offers a flexible means for a borrower to purchase a new home or real estate. Both have credit limits, but a HELOC is based on how much your home is worth, or home equity. The amount also depends on each lender. Typically, lenders grant up to 80% of a borrower’s home equity, however some First Lien HELOCs may have a 90% loan to value, which can require a smaller down payment upon purchase. 

Purchasing a Primary Residence with Home Equity

  • Borrowers with at least 20% equity in their homes are typically considered eligible for loans. This is an important value in the loan pre-approval process.
  • These outstanding loan amounts include your current mortgage and any other loans supporting it.

Loan-to-value Ratio

  • Although your realtor helps you complete your real estate transaction, and the appraiser calculates the appraised value, it may differ from the real estate purchase price.
  • That’s why lenders compare these two values, which produces the loan-to-value ratio. For purchases, the LTV is based on the loan amount divided by the sale price.
  • Loan-to-value ratios can be helpful both for lenders and borrowers because it calculates the loan risk. The more equity you have, the less risk you’ll carry.

Debt-to-income Ratio

Lenders also calculate your debt-to-income (DTI) ratio, which also estimates your borrowing risk. It also shows how much borrowers can manage along with their other outstanding loans.
As a rule of thumb, a post it’s good to keep your debt-to-income ratio under 36%. High mortgages that occupy 28% of your debt can also skew this ratio.

Besides your home loans, your debt-to-income ratio includes overall loans. These loans may be credit cards, auto, insurance, and student loans. Your overall debt also includes other forms of debt besides loans such as alimony or child support.

Purchasing a Primary Residence with a First-lien HELOC

If you need to raise your credit score, make sure to borrow in proportion to your credit limit. Some experts suggest 30% of your total credit limit, while others suggest less than 10%.

Credit scores are composed of overall debt payment history, the length of that history, and outstanding debt. This means that making timely and consistent payments can help you maintain a positive score. (Consumer Financial Protection Bureau: How To Rebuild Your Credit)

Achieve Financial Freedom

Sign up on to get connected with a licensed lender who can deliver an all-in-one 1st Lien HELOC. They’ll walk you through the application process and help outline your budget, your numbers, and exactly how much you can save by replacing your mortgage.