HELOC credit limit - is bigger always better?

Question

Frankie Woods · Answer

Agree with @Chris Mason.  The banks that I've worked with haven't considered unused HELOC balances.  I think it's always best to get the highest amount possible.  You'll never know when you might need it.

Craig Jeppesen · Answer

You also might consider LTV. Financial institutions charge higher rates for higher ltv. I would get the highest limit for the lowest interest rate which is usually 75% to 80% LTV.

Chris Mason · Answer

I know some jumbo loans have that requirement, but if your underwriters & guidelines are requiring that calculation on vanilla FNMA loans you should rally the other LOs to have that overlay nixed. Someone "could" max out a HELOC, but all our clients carrying low/no balances on their high limit credit cards "could" max those out too. Every single borrower with good credit "could" also go get a Lambo with a $1200/mo payment the day after closing since all car lenders check for is pulse & FICO....

Kevin Romines · Answer

The only drawback that I can think of would be that if you ever applied for another loan after you have the HELOC in place, especially a mortgage loan, they will count the monthly payment on the HELOC as if you have drawn the full amount of the line out, even if you haven't at that point. They do that because that is the possibility that exists and would be the true debt ratio if you did do that?

I would look at what the max. payment would be if you were to draw the full amount out and see where that puts your debt ratio at that point and determine if you have any additional capacity after that? If you feel good about where that would be, great, if that puts you in a tough debt ratio position, then it might be something to consider?

I hope that helps?

Craig Ts · Answer

@Kevin Romines, Account Closed interesting information and perspectives.

Kevin, would commercial LOC affect debt ratio as well ?

Kevin Romines · Answer

@Craig Ts Typically they wouldn't because its a commercial loan and most commercial loans don't require a personal guarantee. However, if your had to personally guarantee the loan, then it might? It just depends on if it shows up on your personal credit report and if so, can you show that the loan was made to the company and you didn't guarantee it, if so, then it wont count at that point?

HELOC credit limit - is bigger always better?

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