Littleton, CO · Member since 2017 · 8 posts · 1 vote
I want to take HELOC 40K line on current primary home with Market value of 620k and equity of 180k.
I also want to move out in 3 months after purchasing new property as primary and making current one as rental.
so what will be the effect of New HELOC of 40K line but with out withdrawing funds on new mortgage i will be taking in 3 months for new property .. how will it change rate & LTV?
Is it advised to take HELOC or not [with current situation i am in]?
Opinion and inputs form Underwriters in here is very much appreciated.
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
5y
@Manohar Reddy Paduri In my experience, there are lenders that treat the unused LOC like an unused credit card, and there are others who need to qualify you based on the monthly payment of the full line were drawn. You'll need to talk to a lender and find out how they look at it.
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
5y
Manohar,
You are better off doing a cash out refinance and take out the $40K and just combining into one loan/mortgage. You avoid a lot of issues this way and can increase your buying power.
You are better off doing a cash out refinance and take out the $40K and just combining into one loan/mortgage. You avoid a lot of issues this way and can increase your buying power.
Thank Jason, understand your point.
But that means to make it even to previous Debt-to-Income Ratio I need to be sure of renal income be at least 20-25% more then new amortization schedule, which is hard [ Assuming HELOC account with out withdrawals don't add up in Debt-to-Income Ratios ].
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
5y
@Manohar Reddy Paduri In my experience, there are lenders that treat the unused LOC like an unused credit card, and there are others who need to qualify you based on the monthly payment of the full line were drawn. You'll need to talk to a lender and find out how they look at it.
@Manohar Reddy Paduri In my experience, there are lenders that treat the unused LOC like an unused credit card, and there are others who need to qualify you based on the monthly payment of the full line were drawn. You'll need to talk to a lender and find out how they look at it.
Thanks Dan, do you by chance know any lenders who treat unused LOC like unused credit card.
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
5y
@Manohar Reddy Paduri the lender I used that didn’t include HELOCs has since been swallowed up by a larger financial institution, so I don’t think I can refer you to anyone specifically.
Read about Fannie Mae treatment of HELOCs at this link:
I'm not a lender and you can't rely on my reading of the rules, but it seems to support that the unused HELOC doesn't *have* to count against DTI. Lenders can add their own rules to the Fannie Mae baseline.
A good broker with access to multiple lenders can match you up with the program that best suits your needs.
@Manohar Reddy Paduri the lender I used that didn’t include HELOCs has since been swallowed up by a larger financial institution, so I don’t think I can refer you to anyone specifically.
Read about Fannie Mae treatment of HELOCs at this link:
I'm not a lender and you can't rely on my reading of the rules, but it seems to support that the unused HELOC doesn't *have* to count against DTI. Lenders can add their own rules to the Fannie Mae baseline.
A good broker with access to multiple lenders can match you up with the program that best suits your needs.
@Manohar Reddy Paduri@Dan Schwartz An unused Heloc shouldn't have any effect on DTI. DTI calculation is your monthly minimum debt payments compared to income. Credit/LOC/Helocs with $0 balance have a $0 minimum payment. That's one of the many benefits of a Heloc vs a Cash-Out. When qualification is there, I always recommend everyone have a 1st position Heloc on at least one of their properties. They help DTI, increase cashflow/flexibility, and have the staying power more similar to a traditional mortgage in a downturn.
Real Estate Investor · Tempe, AZ · Member since 2012 · 874 posts · 648 votes
5y
@Justin Phillips I just signed closing docs with a lender who required that DTI include a hypothetical interest-only payment on a full draw, even while the LOC has no balance. The interest rate offered for dealing with this and other overlays was more than worth it. They certainly aren't the only lender than treats LOCs that way, which is why I said there are lenders that underwrite in both manners. I know because I've closed with both.
@Justin Phillips I just signed closing docs with a lender who required that DTI include a hypothetical interest-only payment on a full draw, even while the LOC has no balance. The interest rate offered for dealing with this and other overlays was more than worth it. They certainly aren't the only lender than treats LOCs that way, which is why I said there are lenders that underwrite in both manners. I know because I've closed with both.
When closing on a Heloc, the lender will definitely want to ensure you can afford the interest payments at a max-draw. Sometimes they'll even run that stress test in a number of different interest rate scenarios. Additionally, lenders can add a lot of stipulations if they please. That's why some say they can't/don't lend to self employed, because it's a lot more work for underwriting. I believe Manohar's question was more curious on the impact of a Heloc with $0 balance when applying for a new loan. The Heloc won't impact DTI, but to your point when lenders are looking to get extra stringent, they may call that into question.
Banker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
5y
Most of the time when you are taking out a HELOC its because you already have an unbeatable low rate on the first. If you can get close to the first rate its best to do a cash out refinance and have just (1) loan one payment. A HELOC that is unused can still come into play when your trying to get a new mortgage. It's evaluated as risk and they do calculate the unused portion DE underwriters now a days are excellent at looking for risk. Here is what you have to remember and I am telling you this from experience as I see it every day.
When you have a HELOC you have no other borrowing power from that property unless its paid off. You have an open end mortgage AKA loan/debt obligation. I see people get denied or turned down EVERY day because they try and use a HELOC for a down payment and it gets denied. A few reasons one the cash is not yet in an account and cannot be seasoned unless the terms and conditions of the HELOC are reviewed and the HELOC payment of the new withdrawn funds meets the DTI guide lines. You also have to realize more and more lenders are requiring "liquid reserves" in order to buy investment properties. A HELOC cannot ever be used as a source of funds for the proposed PITI monthly reserves.
You also have to keep in mind that the more open and active trade lines you have creates higher DTI and risk. The bureaus also label that as "excessive tradelines" which can drop or lower your Fico credit scores. So again if its a small project low loan amount or yu cannot beat or come close to the rate on the first, than Yes a HELOC might be the best choice. I am still not a big fan since most of them have an adjustable mortgage and rates are higher on the HELOCS versus the 30 Year in most cases.