How Do Lenders Calculate A Line Of Credit
I know that most lenders will lend up to 80% of your home equity in a line of credit but I don't know how they take your debt to income ratio into consideration. What should my ratio be in order to take advantage of the entire 80% line of credit. My credit score is over 700 and my bills are fairly low but I only make 32k per year. I want to use the credit line to purchase properties.[ Edited by Raj211 on Date 09/13/2003 ]
you should be fine.
Specifically, I don't know the answer to your question, but I do know that an 80% LTV loan with a first position on a primary residence is a VERY conservative loan in the eyes of just about any lender under the sun.
If they foreclose on you, they get their money (afterall, it's only 80% LTV) and the chances of them foreclosing are more slim because it's your home.
Finally, make a couple of phone calls. They will be able to tell you EXACTLY what they will and will not do. If they don't tell you what you want to hear, thank them for their time, tell them that that won't satisfy your needs at this time, and ask if they know of other lenders that WILL do what you need.
Banks and lenders can be intimidating.....who cares???
Thursday I Flew out to Conneticut (From Utah) so that I could have ONE one hour meeting with a lender that I wanted to work with. Within the first minute ht told me that he would never lend money on the project I was proposing under the terms that I had. I didn't back down. We talked about things, tossed it back and forth, and came up with a way that he WOULD lend on the project. One hour turned into four, but now we're moving foreward. My point is, don't be intimidated. Don't take everything they say at face value. There are many ways to skin a cat and there are many lenders out there with many different programs.
Good luck.
This is how the lenders calcualte your debt to income ratio (DTI)
First, add all your monthly payment togerther
including mortgage payment with escrow (insurance and property taxes, home owner's association fee, min credit card payments, any installment payments (i.e. car payment), and any other montly payment (ie. child support, allimony, judgement, and so on)
Second, divide the figure from step one by your monthly gross income (before tax or any other deduction). That is your DTI. Cutoff DTI for most equity programs in 45%.
By the way, you can go higher than 80% LTV, if you have good credit score with less than 45% DTI. When you try to get a home equity line or 2nd mortgage, your proposed mothly payment wil be included in the DTI calculation.
Hope this helps.
I had just purchased a home and I was offered an equity line for debt consolidation or home improvement based on 125% equity in the home. The lender offering it to me is the primary one I have on the house right now which is doing my 80% when I purchased the home. They offered no fees, costs, or appraisal required. I'm considering using some of this available cash to consolidate my unsecured debt. I bought the house at discount and have 10% equity in it right now so I won't be needing to borrow all in that available equity. Thoughts, opinions, suggestions?? TIA.
Good response Smiley.
Hey Raj,
The formula for DTI is standard, but the debts that are included change per lender. Send me a private message and I'l elaborate.
YO Leo_Investor,
Equity lines (heloc) are revolving interest...same as a credit card. Consider a 2nd mortgage (debt consolidation) to pay off bills, then open another 'no cost' equity line for cash availability.
hope this helps,
clear2close
[addsig]
some lenders have different calculations for HELOC's . I do know that national city home equity does this ( loan amount x .70% = qualifing payment)
EX: $85,000 x .70%= $ 595 Now, remeber that most lenders only require that you pay back interest only. So your actual payment will be less than the $ 595 FYI this lender does have one of the lowest qualifing ratio . peace out!