Homeowners looking to buy a new home can use their HELOC loan to facilitate the transaction in a couple of different ways.

First, it is very common, especially in hot housing markets, to buy a new home before selling your current residence. This is a stressful period during which you must make two mortgage payments (as well as tax and insurance payments) until the old house is sold. A readily available HELOC loan provides an effective, low-cost tool to help ease the stress and “bridge” the gap between the closing on the new home and the sale of the existing home. Bear in mind that most HELOC loans allow you to pay interest-only during the first several years which will help keep your total payments manageable.

Second, cash from a HELOC loan can be used to boost your down payment past the threshold for PMI - private mortgage insurance. Typically, if you put less than 20 percent down on a home mortgage, lenders require you to have PMI. This protects the lender if you default on the loan.

For instance, on a $100,000 mortgage with 10 percent down ($10,000), PMI might cost you $40 a month. If, instead, you increase your down payment to 20% with cash from the HELOC loan, you avoid PMI and save $480 a year and many thousands of dollars over the life of the loan. The HELOC loan is then paid off when you sell your old home giving you a greater equity stake in the new home.

Here’s an article - Equity Used For Down Payment - from debt guru Scott Bilker that further explains the benefits of using a HELOC loan for down payment when circumstances are appropriate.