Will a HELOC affect my DTI if I have a Zero balance?

5 Replies

BP's, 

I am looking into getting a HELOC on my primary residence and I was wondering if it will effect my DTI ratio when I go and apply for a conventional or commercial loan in the near future?

For instance: If I get a HELOC and keep the balance at zero while I am applying for a new conventional loan will it count against me or my DTI? I had a lender tell me that if I get a HELOC the entire amount of the HELOC will count against my DTI whether or not I have a balance on it.

I has always thought of HELOC's as credit cards. No matter the limit on your credit card and as long as you have a zero balance your DTI is not affected.

Any insights are greatly appreciated. 

Jonathan

@Jonathan Pflueger this is most definitely depend on which bank you choose.  You will want to speak with your preferred lender to find their policy on this.  Some banks will use the highest possible payment against you.  Some banks will use a certain percentage of the possible balance against you.  The actual rule from Fannie/Freddie is that they don't care about the debt if the balance is $0.  But these extra rules that banks place on their loans are called "overlays".  The larger the bank, if they are publicly traded on the stock market, the more likely they are to have overlays.  A smaller to mid-sized bank generally has less overlays.  Hope this helps!

Andrew Postell, Lender in Texas (#392627)
817-873-0621

@Andrew Postell this is very helpful and really helps clear up some confusion for me. I have never heard of overlays before but I do understand why a bank might use them. Thank you so much for your knowledge. 

It seems that an overlay would be sort of counter productive to what I am looking to do. I would like to get a HELOC and then use it to help finance deals, whether thats for financing costs or flip costs.

Thanks again. 

Originally posted by @Jonathan Pflueger :

@Andrew Postell this is very helpful and really helps clear up some confusion for me. I have never heard of overlays before but I do understand why a bank might use them. Thank you so much for your knowledge. 

It seems that an overlay would be sort of counter productive to what I am looking to do. I would like to get a HELOC and then use it to help finance deals, whether thats for financing costs or flip costs.

Thanks again. 

Don't let it stop you from getting the HELOC you want and investing how you want. Not all lenders have this overlay.

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

@Jonathan Pflueger oh, yes. Please don't allow this to scare you away from getting a HELOC. They are a really good product. Just when it comes time to get a loan...get it from a smaller to mid-sized bank. It might even be a good idea to contact some right away so you can get a head start. Thanks!

Andrew Postell, Lender in Texas (#392627)
817-873-0621

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