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# Real Estate Home Mortgages/HELOC qualification Debt to Income

Question
No other debts, excellent credit.  A comment I found online says that their bank uses 1% of HELOC to cover themselves when determining the DTI Ratio.  The quotes, we got were same terms from two different banks, so maybe they calculate the additional DTI for the HELOC differently, but I don't want to apply at the bank where the Rep thinks the addition to DTI is based on interest only and come back to find that they will really use 1% or whatever the the calculation that was used when my wife was quoted.  Do banks use the interest only to calculate the Debt/Income Ratio in your experience?

We would like to get a HELOC, but are receiving conflicting quotes on maximum HELOC amount.  \$220k House, \$35k (\$783 payment) mortgage left, about \$27k Income, looking for \$50k HELOC. HELOC at Prime 3.25% with interest only payment, 10 year draw, then 15 year payback max Debt to Income Ratio 43%.  How much would we qualify for?

Debt/Income Ratio Calculation: \$27k Net Income * 43% = 11,610 Max Annual Debt/12 months = \$967 Max Monthly Debt - \$783 Mortgage Payment = \$184 available to pay on HELOC each month.

Phone Rep said we should qualify for \$50k as the payment (interest only) would be \$50k*3.25%=\$1,625/12 months = \$135 keeping us under the \$184 maximum monthly debt.

Wife went down to run numbers and apply at the bank, they said we would qualify for only \$26k. (which is only \$70/month interest)

Following is the reason:

Joe,

Do you have any debt you haven't mentioned, such as credit cards, car loan and student loans?

Eric

Expert: Eric Forster

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Allexperts.com

Joe,

Two more items need to be added to the monthly debt: your property tax and your hazard insurance. I assume that that's how the bank arrived at the lower HELOC amount.

Have you considered a refi option instead? A new loan of \$85,000 (30-yr fixed) at 4.25% for 30 years carries a monthly payment of \$418.15. This option would generate the 50k you need, and lower your monthly outlay.

Just a thought.

All the best,

Eric
About Real Estate Home Mortgages
This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here

Real Estate Home Mortgages

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#### Eric Forster

##### Expertise

Did your last mortgage broker or lender trick you into a messy situation which could cost you your home? I've been close to 30 years in the mortgage industry, and I've seen it all. Believe me, it is not pretty. As the owner of a mortgage company I am called frequently to testify as an expert witness in mortgage fraud cases and other cases where lenders did not fully disclose the terms of the loans they were offering to the borrowers. I have seen fraud being committed by borrowers - and by lenders. It's a tough world out there. And by the way - you are invited to visit my website, www.real-estate-expert-witness.net.

##### Experience

More than 25 years in loan production and underwriting in Southern California.

Organizations
Mortgage Bankers of America (Southern California Chapter)

Publications
Former columnist for AOL Financial Center and the author of a mortgage primer.

Education/Credentials
MBA (Finance)