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Lane, JD, CFP, MBA
Lane, JD, CFP, MBA, JD, CFP, MBA, CRPS
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have an heloc for $143,000 and have used 130,000. We have

Resolved Question:

have an heloc for $143,000 and have used 130,000.
We have no mortg, just the heloc.
Our home is worth $275,000 plus 10 acres of residential property.
We have 10 acres of (recently rezoned) commercial property, and is presently on the market for aprox 3.75 million.
Income 46,000 pension
tree farm 26,000 income
S.S. starts
in 3 mths 22,000
Aprox $94,000/year in income
Our monthly heloc pymt is $453.
car pymt $333.
credit cards $20,000
Would we be able to qualify for a mort. for a 2nd home? Would the heloc have to be paid off first? Credit scores are good.
I need some guidance before I shop for a mortg. Any info would be greatly appreciated.
Thank you
L. Kunz
Submitted: 1 year ago.
Category: Finance
Expert:  Lane, JD, CFP, MBA replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

Although this is a question that the loan underwriting dept of each bank or credit union (and their respective answers might be different bask on that institution's policy guidelines) The answr, in my professional opinion, would be yes

NPVAdvisor :

with that kind of income to patments ration you should be find, especially, given that your credit is good

NPVAdvisor :

I WOULD consider payng (not OFF but down to a few dollars) the redit cards

NPVAdvisor :

available credit on cards (closing them completely lowers this number) is a big factor on the FICO credit score

NPVAdvisor :

And they look at it (along with other things) as a percntage (what percentage of your available consumer credit are you using)

NPVAdvisor :

I WOULD try for the mortgage vs using the non-residential property as collateral because of the interest write off that's allowed for a first AND second home debt

NPVAdvisor :

Here are some of the ratios currently used:

NPVAdvisor :

Front-end ratio: The housing expense, or front-end, ratio shows how much of your gross (pretax) monthly income would go toward the mortgage payment. As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes and homeowners insurance, should not exceed 28 percent of your gross monthly income.

NPVAdvisor :

so, that means that even subtracting the current heloc and car payment, you should be able to afford another 1800, 1900 of payment to service a mortgage

NPVAdvisor :

Back-end ratio: The total debt-to-income, or back-end, ratio, shows how much of your gross income would go toward all of your debt obligations, including mortgage, car loans, child support and alimony, credit card bills, student loans and condominium fees. In general, your total monthly debt obligation should not exceed 36 percent of your gross income. To calculate your debt-to-income ratio, multiply your annual salary by 0.36, then divide by 12 (months). The answer is your maximum allowable debt-to-income ratio.

NPVAdvisor :

S0, 91000 x .36 = 32760/12 = 2730

Customer:

I am not really in a position to pay that much down on the credit cards- I am pretty close to the limits on several - I would have to check on these. Also, would the heloc have to be paid off with the mortg?

NPVAdvisor :

I understand... no based on the ratios provided, conventional underwriting would not require you to have to pay off the heloc

NPVAdvisor :

At the 91000, you have more than enough to service another 2000 per month approsimately

NPVAdvisor :

The standard debt-to-income ratios are the housing expense ratio and the total debt-to-income ratio. These are also known as the front-end and back-end ratios, respectively.... and using both of those, even WITH the heloc, your OK ... unless you're looking at a mortgage that would be well over 2000/month

NPVAdvisor :

Soomething else, you may already know this, if you shop for several mortgage within a 30 day period, they credit bureaus will know your shoping and that will not hure your score .... spreading that process out over severla months CAN hurt your credit score

NPVAdvisor :

sorry for the typos ("the" credit bureaus ... know you're "shopping" ... will not "hurt" ...

NPVAdvisor :

But again, at that level of income, and the relatively low CURRENT debt service, most institutions would not require paying off the heloc..... depending of course on the SIZE of the new mortgage and the market to value ration of the second home to the new mortgage

NPVAdvisor :

If you buy a second home and the loan to value ratio is better 80% you should be OK

Customer:

you have been extremly helpful - one last question - we have not found a 2nd home yet - we are looking and would like to be pre-approved for aprox. 275,000, do we apply or get pre-approved?

NPVAdvisor :

SO... on a 250,000 second home, financing 80% (200,000) at 3.5% for 30 years ... you'd be looking at Principal and interest of 898/mo ... well within the range

NPVAdvisor :

I think getting pre-approved helps show good faith in negotiations, just remember that the loan companies/banks/credit unions always qualify what that means ... may times they won't do the full underwriting until fairly close to closing ... although that's gotten better in the last couple ofyears

Customer:

thank you, XXXXX XXXXX very helpful

NPVAdvisor :

The typical process followed by most mortgage lenders is to first perform a pre-approval. With this process, the lender will take a loan application and obtain a credit report. The information in the application and the credit report are analyzed by the lender, and then the lender will issue a decision (either verbally or in writing) on whether or not you are qualified for the loan. The pre-approval will state that you are qualified for the loan subject to verification of certain items. Thus, it is important to note that the only item that has been verified is your credit history via the credit report.


The next step is the verification process. During this process, the information on the application is verified (i.e. income, employment, assets, etc.), the property appraisal is ordered, and the title search is ordered. Once these activities are completed, the lender can then issue a loan commitment.

NPVAdvisor :

Do most pre-approvals result in loan commitments? Assuming the lender is diligent during the pre-approval process, yes. However, it is not uncommon for a consumer to receive a pre-approval and then find out later that the pre-approval was subject to conditions the consumer could not meet, thus prohibiting them from receiving the loan, or forcing them to accept a loan at a higher interest rate or lower loan amount.

NPVAdvisor :

SO watch for that

NPVAdvisor :

Thank you

NPVAdvisor :

Have a good one, and good luck!

Lane, JD, CFP, MBA, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4360
Experience: Providing Financial, Tax & Business advice since 1986
Lane, JD, CFP, MBA and 3 other Finance Specialists are ready to help you
Expert:  Lane, JD, CFP, MBA replied 1 year ago.

Thanks so much for the rating.

Good luck with everything

Lane

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