topic Re: High DTI and utilization - need HELOC to consolidate - what options do I have? in Mortgage Loans

High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Thu, 17 Aug 2023 01:36:36 GMT

I'm in a cycle I need to break. Good news is I am under 50% LTV on my home. Bad news is I can't access the equity due to high utilization on unsecured AND high DTI.

Is there any lender that will take the time to understand - and possibly direct pay the credit cards with the loan proceeds - knowing this will address both the DTI and my adversely affected credit score?

How else - besides additional income - do I get out of the cycle of paying interest only each month and never gaining any traction on principal of the credit cards? I am fighting just to make the minimum payments!

Thanks for the suggestions in advance!

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

NoMoreE46 — Thu, 17 Aug 2023 13:44:41 GMT

Hello @nomoneytowaste ,

Welcome to my Fico. I understand you have some unsecured debt that you want to pay off with the equity in your house.

I am going request that a Moderator move your question under the Mortgage/HELOC area. Under this area, you should hopefully get an industry experienced response.

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

ShanetheMortgageMan — Thu, 17 Aug 2023 16:26:26 GMT

There are a lot of HELOC lenders that will exclude the payments on the debt you'd be paying off with the HELOC from your DTI calculation. Not all of them will though, so just make sure that is one of the first questions you ask potential HELOC lenders so you can decide to continue the application process with them or not.

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Thu, 17 Aug 2023 22:39:29 GMT

This is awesome news Shane, thank you!

Can you point me to any lenders you know of that offer this? Or a "list" that may be out there somewhere to help me narrow down the options some?

So if I can overcome the DTI hurdle, how big of a hurdle is my CS? I currently have a 688 Ex Fico8 score. I believe it would be 780+ if it weren't for 90%+ utilization. I have no derogatories, good mix and age, and low inquiries....

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

NoMoreE46 — Fri, 18 Aug 2023 01:47:29 GMT

@nomoneytowaste, it would best to do your own homework from here to avoid any potential TOS issues.

Going off of what @ShanetheMortgageMan provided, you need to find lenders that will accept "front end DTI" calculations. Linked is an explanation of the two types of DTIs: Front-End Debt-to-Income (investopedia.com)

Good luck!

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

Shooting-For-800 — Sat, 19 Aug 2023 02:47:56 GMT

What about that new credit card HELOC company?

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

Shooting-For-800 — Sat, 19 Aug 2023 02:48:57 GMT

@Shooting-For-800 wrote:
What about that new credit card HELOC company?

Aven. Maybe other similar cards for fast and easy?

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Sat, 19 Aug 2023 03:52:19 GMT

Excellent suggestion - thank you!

Unfortunately, they do not support my state (Delaware) at this time. Definitely open to any and all suggestions though, so keep them coming!

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

ShanetheMortgageMan — Mon, 21 Aug 2023 06:23:53 GMT

@nomoneytowaste wrote:
So if I can overcome the DTI hurdle, how big of a hurdle is my CS? I currently have a 688 Ex Fico8 score. I believe it would be 780+ if it weren't for 90%+ utilization. I have no derogatories, good mix and age, and low inquiries....

Credit score is one of the factors they use to determine if you can qualify, it's just as important as a qualifying DTI or any other guideline that has to be met. Some HELOC lenders use your mortgage FICO scores and some use FICO 8's. You can ask what bureau(s) and scoring model they use to determine if you qualify. A 688 score would meet most programs requirements, especially if you are at a lower CLTV.

As as far as recommendations, I'd suggest you ask the loan officer who helped you get your current mortgage. You might want to ask your bank about their HELOC program, if any, or if they don't have one then ask if they have any recommendations. Call around other banks local to you. Ask your existing mortgage company if they offer a HELEC. If you keep in touch with your real estate agent ask if they have a loan officer that offers HELOC's.

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

swsjfs1 — Sun, 14 Apr 2024 06:35:49 GMT

Just curious if you were able to find a HELOC loan? I'm currently in a similar situation and would appreciate any recommendations/advice. Thanks

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Mon, 15 Apr 2024 03:59:43 GMT

Very funny you would revive this old post and ask - but I'm glad you did!

So my situation had only gotten worse in the last 5-6 months. My monthly minimums were exceeding my income and I was making payments, then using the card to make purchaes to survive. Ugly situation. I recently decided to dig back in.

My credit scores were even worse than before...but I got a little more tenacious. What were my scores and what were banks really requiring? I had a mid-600's Experian, but under 600 EQ and TU. I dug into a couple threads of "who pulls what bureau?" and discovered TD Bank was one of the few that pulled EX. I called them to find out their minimum - and all you needed was a EX 660 Fico 2 mortgage score to qualify. (By the way, Shane was right....upper 600's would be enough to qualify with many lenders!)

I made partial payments to 2 small cards (under $1000 total payments), which brought utilization under a threshhold for those 2 accounts and sure enough...once they reported, I was at a 667 EX Fico 2! I applied this past week and I already have a conditional approval! Now, I will of course have to use much of the proceeds toward payoffs in order to reach a sub-43% utilization AFTER closing - to include the new HELO payment. But this is completely fine with me - the purpose is to consolidate anyway, not just add more debt.

Funny enough, I have a score simulator on one of my credit card online banking apps....with a current TU 540, I checked a box that says "pay off all credit card balances". It shows my score would jump 282 points - to an 822! So again - my profile is strong; but the utilization KILLS you!

I hope that this offers some hope to you. Message me with specific questions and share what scoring you have with who and I may be able to offer some suggestions based on what I've learned going through the process myself. This forum has truly been a God-send to me and I'd love to be able to pay it forward!

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

Living20057 — Sun, 21 Apr 2024 01:34:07 GMT

Does td taken into consideration your using the funds to pay down and that will lower your dti

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

Dancer — Mon, 22 Apr 2024 18:40:34 GMT

Hello, yes I can use your help. I'm not doing good. I'm pretty much in the exact same situation you was in. My score is 690 but my income sucks with a ton of equity in my home.

Can you please advise. I deliver in Georgia.

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Mon, 22 Apr 2024 19:02:24 GMT

If you have credit of 690+ and plenty of equity, then all you need to be able to do is achieve a 43% or lower DTI calculation (using gross earnings) AFTER payoffs.

This is typically very achievable because you can go out to 30 years on the HELO and bring $4000 in credit card/personal loan minimums into a $1000/month payment or less, for example. Pretty simple to do the math and there are many free calculators out there to calculate your monthly payment based on a loan amount, interest rate, and term.

Every bank and CU I spoke to will eliminate your credit lines being paid off from the monthly minimums used to calculate your new DTI. Some may allow you to have a higher DTI than 43%, but that is TD's number and I imagine many want to see sub-50% DTI at closing. What you do from there is up to you, as they do not require you to close the card accounts/lines.

When you say "income sucks" - this could be a problem. Obviously no lender wants the risk of loaning money to someone who can't afford to repay it. I have no idea what your situation is, but just do the math of your gross monthly income x .43. This is the max that all the minimum payments on your credit report must stay under to get approved. It would help to do research on how to strategize your card payments to improve how things are reporting. Wealth of knowledge on this topic in this forum!

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

FinancialFreedomSeeker84 — Tue, 28 May 2024 12:33:40 GMT

Hello! I am looking to get a Home Equity loan through TD bank based on your posts because I am in the same situation as you. I'm sitting on almost $500k in equity and it would be a godsend to tap into that for debt consolidation. Was your experience with them a good one?? Hoping to reach out to them today and get this process started. Thanks!!

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Tue, 28 May 2024 19:49:27 GMT

If your credit scores are close to 700 (or more), I would recommend you look at another lender. My experience with TD was rough and I don't think their offering really stands out in the marketplace. One pro is $99 closing fee and no prepayment penalties on a LOAN (different for LOC). This was extra important to me - I will explain why.

The main reason I went with TD is they only pull EX (Fico 2 mortgage score) and my EQ and TU are 100 points lower. I was able to squeeze by their minimum of 660 and get approved. This loan is a stepping stone...I will use it to pay down some unsecured with high utilization, bringing utilization down and increasing my scores. Then I will replace it with a better HELO product from another lender. APGFCU has some incredible rates - haven't found anyone to beat them yet, TBH.

Bottom line? I went with TD out of desperation. If my scores supported it, I would have gone APGFCU out of the gate. Every lender I have spoken to will determine your DTI taking into account using loan proceeds to payoff existing debt you are consolodating.

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

FinancialFreedomSeeker84 — Tue, 28 May 2024 20:34:27 GMT

Thank you so much for getting back to me! I definitely understand the desperation! It's so hard when you feel like you are stuck with no way out. I'm feeling that way right now but I know it won't always be this way.

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Tue, 28 May 2024 21:05:46 GMT

Absolutely - you are correct! I'm glad I can give someone else some hope and encouragement.

I watched a Dave Ramsey clip where someone called into his show and asked "should I consolodate my high interest unsecured debt into a HELO(C)?" He answered NO. Don't just "move it", PAY IT OFF. Do the hard work necessary to get rid of it. While I do see his point - many see consolodation as "paying the debt off" - and undisciplined people will just run the still-open unsecured lines back up. But the harsh reality is that when you get to the point where you can barely keep up with minimum payments on multiple cards with rates 18%-30%...you are doing all you can to just survive and you are just throwing your money at the interest, never attacking the principle!

If you have the ability to get a 2nd and 3rd job, get rid of unnecessary spending, give up the "toys", eat ramen and just pay, pay, pay them down - great. Do that! That is what Ramsey would prefer to see you do...and I don't disagree. But this wasn't the fit for me and I feel I have a better chance at getting the debt under control and the principle reduced by consolodating it and putting more of my monthly payments towards priciple and less towards interest.

Of course, this takes DISCIPLINE! I'm not going to just make my minimum payments on the HELO - if you haven't before, use a loan calculator and study the amortization chart....let it sink in for a while. Look at amount borrowed vs. total amount paid. Be careful...you might get sick to your stomach! You cannot start living like you just got a $3000/month raise! You cannot just rack the now $0 balance cards up again! The goal is to get rid of the anxiety, continue to be frugal and aggressive about payments, and employ good budgeting and spending habits to avoid getting into the same situation again.

Ramsey did leave this impression on me..."You didn't PAY IT OFF - you just MOVED it!" Keep this fresh in your mind - and make the goal PAYING IT OFF....even if you MOVE IT (first)!

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

FinancialFreedomSeeker84 — Tue, 28 May 2024 21:42:01 GMT

I agree with you 100%!!!! I wish I could just penny pinch and pay it off instead of moving it but I can't! I already work a FT job and PT job and my husband works FT. Having he HELO is cutting our total out of pocket monthly payments down ($2,000/less a month) and will allow us to breathe finally! And like you, I plan on paying extra because I will be able to do so without feeling like I'm never getting anywhere!

Discipline is definitely the key word here! I've already said my cards will get put in our safe and I won't be touching them. Now, I don't want them to be closed so I'm going to create a 5 month rolling system where I use a couple each month for $20-$100 and then pay it off once the bill comes to keep them active and not going dormant so the creditor doesn't close them and that affect my available credit. I plan on never being in this situation again. If I get out of this time, I will never come back to this point.

Thank you for responding to me today. You have no idea how much your words have helped me today. I sincerely mean that.

I hope to one day live by DR'e principles, but until I can, I will be taking the baby steps to get there.

Re: High DTI and utilization - need HELOC to consolidate - what options do I have?

nomoneytowaste — Wed, 29 May 2024 13:47:36 GMT

I am really happy to hear that I was able to help in some way. I could never pay back the help that I have received from others on this forum, but it's nice to give back something!

Sounds like you have the right mindset and I love your plan to keep your cards active - but safe from abuse.

Hopeful it's not a violation to do so, but this is the DR clip I was referring to...and I think you would really enjoy it. It's only 6 minutes long: https://www.youtube.com/watch?v=ODqDtx7vpok