Banker · Greater Phoenix · Member since 2013 · 32 posts · 5 votes
I have a good amount of equity i can utilize in my primary(i plan on renting it). I plan on purchasing another home soon i would like the opportunity to use the loc if necessary. i dont want to ruin my dti by adding another payment before applying for conventional financing.
Does a HELOC with a zero balance show as a 0$ payment and not count towards my DTI?
I have been thinking about doing the same thing as you described, and actually asked a loan officer. The answer was that the minimum payment on the maximum available draw amount would count toward your DTI even if you did not draw anything from the HELOC.
Although a zero balance they will use worse case senario and calculate the MAX equity line amount payment. So if you have a zero balance on a 150k equity line they will use the 150k payment amount counting against your DTI.
Keep in mind DTI isn't like FICO where a scale like good, better and best. DTI is yes or no. Before the QM rules kick in a conventional loans accept borrowers with a 50 DTI or less HOWEVER if a borrower is 45 or less less reserves are required generally speaking reserve requirements go form 6 months to 2 months with a DTI of 45% or less. SO as long as you're 44.9999% or 1% DTI you are still qualified.
That seems completely misplaced to me. I'm not saying you guys are wrong. But I am saying that it seems completely illogical for a lender to count a payment for a LOC against you as if you had maxed out the LOC.
Thats like saying that they should count your credit cards based on what the payments would be if you maxed those out as well.
I don't know that I believe that logic is correct. That just seems to go completely against the rules of fairness. How can you count payments against my DTI that I'm not actually having to pay?
There is absolutely no common sense with the banking industry.
And to back that statement up, all I need to do is point to the fact that these geniuses were the ones that thought subprime loans and liar loans were a good idea.
Here was the subprime conversation at the banks:
"Ok, this buyer can't qualify for a 6% loan. Too big a risk in that we don't believe they'll pay that back. But if we charge 12% on the loans, then we like our chances of making money on them. "
Here was the liar loan conversation at the banks:
"Ok. We think its a waste of time to have people show us their w-2. Lets just have them agree to pay a higher interest rate and TELL US how much they're making. Thats not really much of a risk is it? Who would like about their income? "
There's my take on just two of the crazy loans these guys have. And now I see something this scenario above and all you can do is shake your head and wonder how these banks ever make money.
If you read the mortgage documents signed along with your HELoC, you will most probably find that the bank registered the full possible amount of the LoC as a lien against the property.
I see what you mean but the reason why lender and banks use this rule is because with the new laws lenders on the hook making sure the borrower has the ability to repay.
Lets say I've got a borrower with current DTI of 35% which is well below the 50% DTI and I know as a underwriter the borrower has a equity line that if he decided to put out all the cash the DTI would go to 70% the investor can come back to my lender for the loan to be bough back because the underwriter didn't do all they could to PROVE the borrower has the ability to repay the loan.
But how is an LOC any different than a credit card?
If that were the case, then why don't banks look at all your available credit in your credit cards and calculate what your payments would be if you maxed those out as well?
It just seems incredibly inconsistent that they could assign a payment amount for a debt that you don't actually owe. Thats like me telling them that I'll be paying off my car in 6 months so I'd like my car payment removed from the calculation since it will be gone soon.
Its inconsistent and quite literally inaccurate to calculate someone's DTI based on payments that the person isn't even responsible for.
Whats next? If I have very good credit and have the ability to get another 50k in loans over the next few months, then they can add those "potential" payments in my dti calculation too? Or what if my house has even more equity in it and I have the ability to increase my LOC another 50k. Should they be able to calculate the payments based on increasing the LOC just because I have the potential to pull that out?
Its absolute nonsense and shouldn't be legal - quite honestly. The DTI calculation should only be using the payments you have at the present time, PERIOD. Not how much your payments "might be" were you to pull all your money out of a given instrument.
Again, its banker nonsense that is not rooted in common sense - which is exactly the reason why these banks need to be regulated. They'd all do be doing stupid stuff if they weren't.....
I would think because most credit cards are 10k or less and it's a difference of a couple 100 dollars vs $1000's and credit cards are unsecured vs a HELCO being an existing lien on the property. My guess.
Here is a opposite situation for you. If you have 10 payments or less on a car loan they don't count it against your DTI. : )
@Mike H. - I currently have a HELOC open and it is the same as the others described (the max payment was calculated). There are a lot of things that could be fixed or done better, but you got to meet the requirements issued by the person (or bank) you are borrowing from. You could always get your loan, get your property, and then open a HELOC- but it will affect the amount you are able to get (you will get less bc of your increased debt).