Does having a HELOC affect DTI or Credit?

12 Replies

I'm considering pulling out an 80% HELOC on my primary residence to invest using the BRRRR strategy. Would doing so negatively affect my DTI or credit and make it harder to qualify for a conventional loan when refinancing? I currently only have 3 rentals so I'd prefer a conventional loan. I've heard financing gets a little tighter after 3.

Thanks for any advice you might share!

I'm also looking for a recommendation on HELOC lenders.

@Daniel DeSurra my heloc shows up as a real estate loan on my credit report. Yes it does effect your score when you pull it out, at least mine does.

@Bryan Richardson Out of curiousity...how badly did it affect your credit score and how many rentals did you have before you got a HELOC ? I am also trying to get a better understanding of the BRRRR method.

@Marsha Fils Honestly I cant remember how bad it effects it. I put the heloc on my 2nd rental house. Ive had it open for about 2 yrs now, it's kinda nice because it works like a credit card with low rates. I opened it before I knew you could brrrr with cash out refinancing mortgages.

@Daniel DeSurra When it comes to your DTI, if there's a balance on the HELOC, a lender will obviously have to factor that into your DTI calculation (unless you're doing a refi and the refi would be to payoff that balance). If there's no balance on your HELOC then it won't have any effect on your DTI.

As for your credit, I opened two HELOCs and it didn't negatively affect my credit score at all.

One of my HELOC's is through Union Bank and I believe they're in your neck of the woods. But you should call around to find the lender that will work best for you. Here's some questions you can ask when calling around: What You Need to Know When Shopping for a HELOC.

Good luck!

short answer yes. if you can get similar or better rate through conventional then go that route

Thank you Everyone. Very helpful. 

Originally posted by @Daniel DeSurra :

I'm considering pulling out an 80% HELOC on my primary residence to invest using the BRRRR strategy. Would doing so negatively affect my DTI or credit and make it harder to qualify for a conventional loan when refinancing? I currently only have 3 rentals so I'd prefer a conventional loan. I've heard financing gets a little tighter after 3.

Thanks for any advice you might share!

I'm also looking for a recommendation on HELOC lenders.

HI Daniel,

Yes it does affect your DTI, how much you may ask?

Underwriters will typically use the actual payment on your heloc. To determine this they will ask for a copy of your HELOC agreement or mortgage note to determine how the lender will calculate your payment, whether its interest only, P&I at 1% of balance, .75% of balance per month, or etc. I've seen a variety of payments from HELOC's.

Some lenders like Chase will assess 1% of your balance a month as an overlay even if your HELOC is interest only so you may want to take this into account when picking your lending options.

I also plan this to ensure my DTI is always in check and I can continue buying or obtaining financing. I also help clients maintain their DTI as well from filing tax returns and keeping liabilities managed to ensure they can always obtain financing.

Thank you @Albert Bui !

If I were to purchase a property using the BRRRR method using funds from my HELOC, when it came time to refinance, would the lender take into consideration my intention to pay off the HELOC balance with the funds received by the new loan?

My main concern is not being able to refinance due to DTI reasons. My credit and income are good but I'd like to learn more about how to calculate my DTI and know whether I am attractive to lenders, considering I already own 3 rentals that aren't cash flowing very much. The agent with Union Bank said the underwriters only count 75% of my rental income so I would show an overall loss on rental income which will affect my DTI.

Thanks for any more insight you’re willing to share!

Daniel 

Originally posted by @Daniel DeSurra :

Thank you @Albert Bui !

If I were to purchase a property using the BRRRR method using funds from my HELOC, when it came time to refinance, would the lender take into consideration my intention to pay off the HELOC balance with the funds received by the new loan?

My main concern is not being able to refinance due to DTI reasons. My credit and income are good but I'd like to learn more about how to calculate my DTI and know whether I am attractive to lenders, considering I already own 3 rentals that aren't cash flowing very much. The agent with Union Bank said the underwriters only count 75% of my rental income so I would show an overall loss on rental income which will affect my DTI.

Thanks for any more insight you’re willing to share!

Daniel 

 Yes if you pay down the heloc your min payment calculated will go down as well 

And yes pretty much any lender following Fannie Freddie use 75% of gross minus PITI

@Daniel DeSurra if you would like a size up from Union Bank I would be happy to assist. I have completed 2 helocs for B.P. members in the past 2 months.

Originally posted by @Daniel DeSurra :

I'm considering pulling out an 80% HELOC on my primary residence to invest using the BRRRR strategy. Would doing so negatively affect my DTI or credit and make it harder to qualify for a conventional loan when refinancing? I currently only have 3 rentals so I'd prefer a conventional loan. I've heard financing gets a little tighter after 3.

Thanks for any advice you might share!

I'm also looking for a recommendation on HELOC lenders.

Yes, and Yes. The UW will qualify you based on the entire HELOC being drawn and an inquiry will be executed on your credit report.

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