Using Your Equity to Buy a Second Home

Written by Bryan Piccolomini, NMLS #228509, a mortgage loan originator with Residential Mortgage, LLC (NMLS #167729), a wholly owned subsidiary of Northrim Bank. Loans are originated through Residential Mortgage, LLC.

What equity actually means here

Equity is the value of your current home minus what you still owe on it. Not all of it is reachable. Lenders lend to a maximum loan-to-value, so the usable portion is smaller than the raw difference, and the applicable limit comes from the loan program rather than from a universal figure.

The equity calculator on the calculators page takes a value and a balance you enter and shows both figures: the total equity, and what a loan-to-value scenario you select would imply. It selects nothing for you and recommends nothing.

The cash-out refinance route

A cash-out refinance replaces the mortgage on your current home with a new, larger one. You receive the difference, less costs, and that money can go toward the second property. In exchange, the loan on your current home is now a new loan on new terms.

That last point is the one people underweight. A cash-out refinance does not sit alongside your existing mortgage. It replaces it. If the loan you are replacing carries terms you like, refinancing the entire balance to reach a portion of the equity can cost more than it frees up. That comparison is specific to your loan and is the first thing to work out.

On how much is reachable: for conforming loans, Fannie Mae’s Eligibility Matrix (August 2026 edition) lists 80% as the maximum loan-to-value on a one-unit principal residence cash-out refinance, which is why 80% is a common modeling scenario. Lenders and other programs differ, the matrix itself carries exceptions, and the figure that applies to your file comes from the program and the underwriting decision.

What it does to the second purchase

Two effects, pulling in different directions.

• It supplies down payment funds that are already documented and already yours, which removes a sourcing problem.
• It raises the payment on your current home, and that payment counts in full when the second purchase is underwritten. A larger cash-out can improve the down payment picture and worsen the debt-to-income picture at the same time.

Those two effects have to be modeled together, not one after the other. It is the single most common reason a plan that looked fine on paper does not survive underwriting.

Sequencing

Timing matters. A refinance on the current home and a purchase loan on the new one are two transactions, and the order they happen in affects how each is underwritten. There is no single right sequence; it depends on the properties, the timing of the purchase, and what the file looks like. It is a question to settle at the start rather than midway.

Work the numbers first

Run the equity calculator against your current home, then run the down payment and debt-to-income calculators against the purchase you are considering. Three results, from your own figures, are a far better starting point than a general article. Then have the whole picture looked at once, rather than in pieces.

Common questions