High DTI Ratio with HELOC

[Devan W.]

Hi BP! Recently, my wife & I decided to get a HELOC on our rental property in hopes of buying more rentals. Our lender said $210k was the max we could qualify for considering the LTV and our DTI (now around 53% with HELOC).

So now we have two 15-yr mortgages (primary & rental) plus a HELOC counting towards our DTI. We both have excellent credit and no other debt besides our mortgages. Even though the HELOC has a zero balance, it still counts against our DTI as if we are utilizing the entire amount. Is financing another rental even an option for us at this point? Are we limited to buying a property with all cash from the HELOC? Are there any lenders that do not take DTI into consideration? Our plan was to buy several rentals by only putting 20-25% down but that doesn't seem like it's going to be an option now.

Also, the deals don't look as good when we factor in the 6.5% variable interest rate from our HELOC. Basically, a $100k deal would cost us $542/month in interest. Seems like it would be hard to cash-flow without using leverage. Do we just need to look for better deals?! 

Any suggestions? Thanks!

[Ramon Flores]

@Devan W. Hi Devan, you are correct that a lot of lenders will not grant you a conventional loan since your DTI is too high. However, there are lenders that care more about the deal itself than your DTI. You can get a hard money loan if the deal is good and only put down a small percentage, then refi out to pay the loan back. You will also have money in your HELOC as a backup in case anything goes wrong.