Thinking about using my HELOC to fix up my current home before selling it. If I max out my allowed DTI ratio based on my income without drawing from the HELOC, and then use the HELOC funds at closing, will this keep the HELOC from affecting my DTI ratio?
Edit1 - Thanks for the help! Looks like I’d need to provide a source of funds, so this won’t work as planned.
This forum might not be the best place for consumer finance questions.
Nope. Lenders usually calculate the HELOC payment as if it’s fully drawn.
Grier said:
Nope. Lenders usually calculate the HELOC payment as if it’s fully drawn.
Actually, for conventional mortgages, the HELOC limit affects HCLTV, not DTI, especially if the HELOC is on a different property.
Most lenders look at the terms and max payment of the HELOC, not just the balance, and factor that into your DTI.
Cleo said:
Most lenders look at the terms and max payment of the HELOC, not just the balance, and factor that into your DTI.
For conventional loans, the HELOC limit only affects HCLTV, not DTI, unless it’s on the house you’re buying.
@Mika
If they keep their current house after buying the new one, they’ll need to liquidate funds for closing, which means the DTI will have to be updated. Also, using the HELOC to increase DTI isn’t going to work here.
@Cleo
Right. And I already mentioned to the poster that their plan wouldn’t work. Just wanted to clear up that HELOC limits don’t affect DTI if it’s a different property.
Mika said:
@Cleo
Right. And I already mentioned to the poster that their plan wouldn’t work. Just wanted to clear up that HELOC limits don’t affect DTI if it’s a different property.
Got it. I misunderstood the question at first—thanks for clarifying!
I know some local lenders in SE Michigan offer bridge loans for this. I’ve seen clients go for them, but I’m not sure if it’s the best option financially. Anyone else have insight on this?
Where will the funds for closing that need to be sourced and verified come from?
Bright said:
Where will the funds for closing that need to be sourced and verified come from?
Good point. So can I draw from my HELOC after reaching the max DTI ratio without initially using the HELOC?
@Gray
No, the funds have to be sourced, and if they come from the HELOC, the lender will update your DTI to include the new HELOC repayment terms.
Check out Fannie Mae guidelines on ‘borrowed funds secured by an asset’ for more details.
@Mika
If you have enough in a retirement account or another non-liquid source (20% of total cash needed), they might not ask for additional asset docs.
But hey, not encouraging any shady moves here!
Spencer said:
@Mika
If you have enough in a retirement account or another non-liquid source (20% of total cash needed), they might not ask for additional asset docs.
But hey, not encouraging any shady moves here!
True, but you’d still need to confirm you’re not taking on new debt, which a HELOC draw would violate.
So unless the HELOC isn’t needed, it would still technically be mortgage fraud.
@Gray
If you’re using HELOC funds, the lender will definitely factor it into your DTI, as they’ll get updated HELOC details.