How Does HELOC affect Lender Debt-to-Income requirements?

6 Replies

Hello All,

My wife and I have recently started the process of applying for a fixed rate (4.5%) HELOC with $100K limit with a draw period of 10 years. We own a primary residence and 2 rental properties. The reason we wanted to open a HELOC is to give us flexibility and piece of mind in case major repairs come our way or if we spot an opportunity to buy a property that needs some work. We intend to keep the balance on this HELOC at $0 more often than not.

I spoke to my mortgage originator and asked him about Debt-to-Income requirements for their conventional loans. He told me that they start to balk once the client's DTI reaches 45%, making it harder to qualify. I asked him if having this HELOC sitting off to the side at $0 balance is going to negatively affect my DTI and his answer to me was "it will not negatively affect your DTI % unless you borrow against it and have a payment scheduled."  Does this answer check out?  It seems that I've read conflicting forums on the subject.  

Again, we plan to have 20% down plus closing $ in our checkings/savings accounts for our next property purchase - without having anything borrowed from the HELOC. Am I hindering my borrowing power & negatively impacting my DTI by just having the HELOC available?

Thanks in Advance,


Others will probably know more than I do, but what the mortgage originator said has been my experience. When i mentioned a HELOC, the only concern was what the monthly payment was. It seems like it was handled the same way as, say, having credit available on a credit card is. The payment would have been calculated into DTI, but that's it.

@Matt Leber You have open HELOC which you can use any time, yes lender will hit your dti with full payment.

According to Fannie and Freddie, If the balance is $0 it is not debt and has no payment therefore, it is not a part of the calculation. Some banks may have an overlay that looks at it differently, but you should be able to find a lender that will not count it.

@Matt Leber   Most lenders will view HELOCs like a credit card account.  If the balance is $0, no monthly payment is counted.  Whatever payment is listed on the credit report is what will be counted.  

The only exception to the above correct answers ("$0 balance = 0% DTI impact") is when individual lenders have overlays. Sounds like your lender doesn't, so you're good to go, but some lenders will hit you with the max payment as if it were maxed out.

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