Cash Offer vs HELOC to Catch Up on Mortgage: Which is Better?
Key Takeaway
A HELOC doesn't fix affordability - it adds more debt. If your hardship is truly temporary and you can afford two payments, a HELOC might help you keep your home. But if your income has permanently decreased, taking on more debt often leads to losing the home AND owing more money. Selling protects your remaining equity.
When you're behind on your mortgage, you may consider tapping your home equity to catch up. A HELOC (Home Equity Line of Credit) lets you borrow against your equity to pay arrears. But is this smarter than selling? This guide compares both options so you can make the right choice for your situation.
Quick Comparison: Cash Sale vs HELOC
| Factor | Sell for Cash | HELOC to Catch Up |
|---|---|---|
| Keep Your Home | No | Yes (if you can make payments) |
| Timeline | 7-14 days | 30-45 days |
| Qualification Required | None | Credit, income, equity required |
| New Monthly Payment | None (you move) | HELOC payment added |
| Total Debt After | Zero | Mortgage + HELOC |
| Risk If You Can't Pay Later | None (already sold) | Lose home AND owe HELOC |
| Equity Preserved | Yes, minus sale discount | Reduced by HELOC balance |
| Available If Behind | Yes | Usually not |
| Best For | Permanent hardship, need certainty | Temporary hardship, can afford both payments |
Understanding HELOC to Catch Up
Using HELOC to Pay Mortgage Arrears
Best for: Temporary hardship with recoveryA HELOC (Home Equity Line of Credit) is a revolving credit line secured by your home. The idea: borrow against your equity to pay off missed mortgage payments, bringing your loan current. You then repay the HELOC over time while making regular mortgage payments.
HELOC Requirements
- Current on mortgage: Most lenders require you to be current - very hard to get if already behind
- Sufficient equity: Typically need 15-20%+ equity after HELOC (80-85% max CLTV)
- Credit score: Usually 620+ minimum, better rates at 700+
- Debt-to-income: Must show ability to afford both payments
- Income verification: Stable income documentation required
HELOC Advantages
- Keep your home
- Maintain homeownership benefits
- May have lower rate than credit cards
- Interest may be tax deductible
- Flexibility to draw as needed
- Preserves your living situation
HELOC Risks
- Adds second monthly payment
- Variable rate can increase
- Reduces your equity cushion
- Hard to qualify if already struggling
- Takes 30-45 days to process
- Doesn't fix underlying affordability problem
- Risk of losing home AND owing HELOC
Critical HELOC Reality Check
If you're already behind on your mortgage, you probably cannot qualify for a HELOC. Most lenders require you to be current. Even if you find a lender willing to work with you, the rates will be high and the timeline long. Don't count on a HELOC as a foreclosure solution if you're already in arrears.
Understanding Cash Sale Option
Selling to a Cash Buyer
Best for: Certainty, permanent hardship, time pressureSelling your home to a cash buyer means receiving a quick offer, fast closing (7-14 days), and walking away with your remaining equity. You leave the home but eliminate all mortgage debt and future payment risk.
Cash Sale Process
- No qualification: Cash buyers don't require credit or income verification from you
- As-is purchase: No repairs or staging needed
- Fast closing: 7-14 days typical, even faster if urgent
- Certain funds: No financing contingency that can fall through
- Payoff at closing: Mortgage paid off, you get remaining equity
Cash Sale Advantages
- No qualification requirements
- Fast closing (7-14 days)
- Eliminates all mortgage debt
- No future payment risk
- Cash in hand at closing
- Clean break, fresh start
- Works even if behind on payments
- No HELOC debt to repay
Cash Sale Considerations
- You must move out
- Typically 70-85% of market value
- Lose homeownership benefits
- Moving costs and disruption
- May have emotional attachment
- Need to find new housing
When HELOC Makes Sense
A HELOC to catch up on your mortgage is only a good idea in specific circumstances:
HELOC May Work Scenario 1: Temporary Job Loss
You lost your job but have a new position starting soon with equal or higher income. You're only 1-2 payments behind. Your credit score is still good (680+). You have significant equity (30%+). A HELOC could bridge the gap until your new income kicks in.
HELOC May Work Scenario 2: One-Time Emergency Expense
A medical emergency or major repair caused you to fall behind, but your regular income fully supports your mortgage. You expect no further emergencies. You're current on payments and only need funds to rebuild savings and get a buffer.
HELOC May Work Scenario 3: Income Increase Coming
You're about to receive a significant raise, bonus, or new income stream (rental property coming online, spouse returning to work, etc.). You can document this future income. You just need to bridge a short gap.
When Selling is Better
Selling is usually the safer choice in these common situations:
Sell Instead Scenario 1: Permanent Income Reduction
Your income has permanently decreased due to retirement, disability, divorce, career change, or job loss without replacement. Adding HELOC debt to an already unaffordable situation will likely lead to losing the home later - with less equity and more debt.
Sell Instead Scenario 2: Already Far Behind
You're 6+ months behind with no clear path to catch up. The amount needed to reinstate is substantial. Even if you could get a HELOC, the combined payments would strain your budget. Selling preserves your remaining equity.
Sell Instead Scenario 3: Credit Already Damaged
Late payments have dropped your credit score below 620. You won't qualify for a HELOC with reasonable terms anyway. Selling lets you walk away with equity rather than exploring expensive alternatives that may not work.
Sell Instead Scenario 4: Foreclosure Timeline Pressure
You've received Notice of Sale and have only weeks before auction. A HELOC takes 30-45 days to process - if you even qualify. A cash sale can close in 7-14 days, saving your equity before it's lost at auction.
The Math: Comparing Outcomes
Let's compare two scenarios for a homeowner who is $20,000 behind on their mortgage:
Option A: HELOC to Catch Up
Option B: Sell for Cash
The Hidden Cost of HELOC Risk
In Option A, if you still can't make payments 2 years later, you could face foreclosure having paid $39,000+ in HELOC costs (24 months x $330 + fees), only to lose the home anyway. In Option B, you have $80,000 cash and no debt from day one. The "savings" from keeping your home only work if you can actually sustain the payments long-term.
Decision Guide: Which is Right for You?
Answer These Questions
Is your income reduction temporary or permanent?
Temporary with clear recovery: HELOC may help bridge the gap.
Permanent or uncertain: Selling is likely safer - don't add debt to an unaffordable situation.
Can you actually qualify for a HELOC?
Current on mortgage, 620+ credit, stable income: You may qualify.
Already behind, damaged credit, unstable income: You likely won't qualify, so this isn't a real option anyway.
Can you afford mortgage + HELOC payment?
Yes, comfortably: HELOC could work if you qualify.
Barely or no: Don't add payments you can't afford. Sell instead.
How much time do you have?
Months before any foreclosure action: Time to explore HELOC properly.
Foreclosure active, auction scheduled: HELOC takes too long. Cash sale is your option.
What's your risk tolerance?
Willing to risk losing home + owing more: HELOC is a gamble that could pay off.
Want certainty and a fresh start: Selling eliminates all risk and debt.
Alternatives to Consider
Before deciding between HELOC and selling, consider these other options:
| Alternative | How It Works | Best For |
|---|---|---|
| Loan Modification | Permanently change loan terms to lower payment | Income reduced but can afford lower payment |
| Forbearance | Temporary pause/reduction in payments | Short-term hardship with clear end date |
| Repayment Plan | Catch up on arrears over 6-12 months | Can afford slightly higher payments temporarily |
| Partial Claim (FHA) | Interest-free second mortgage for arrears | FHA loan holders, can afford current payment |
| Traditional Sale | List with agent for market price | Time available, market-ready home |
Avoid Predatory "Rescue" Schemes
Be extremely cautious of anyone offering to "save" your home through equity stripping, sale-leaseback, or deed transfer arrangements. These schemes often result in losing your home AND your equity. Legitimate options include loan modification through your servicer, selling through a licensed professional, or working with HUD-approved counselors.
Not Sure Which Option is Right?
We help California homeowners evaluate all their options - including whether keeping your home makes sense or if selling protects your interests better. Get a free, no-pressure consultation to understand your specific situation.