How to Lower Your DTI for a Top HELOC Rate

Many borrowers focus on income and credit history requirements, but too often they overlook their debt-to-income (DTI) ratio. However, your debt-to-income (DTI) ratio is one of the most important factors when getting a new home equity line of credit. This shows your monthly debt compared to your income, so lenders can determine whether or not you can reasonably afford your new line of credit. The lower your DTI, the better your interest rate will likely be.

If you are considering getting a HELOC, this is what you need to know about how to lower your DTI so you can qualify for the best rate.

In this article (Skip to...)

• What is DTI and why do lenders care?
• DTI thresholds that really matter for a HELOC
• Ways to lower DTI before you apply for a HELOC
• Credit strategies that indirectly lower DTI
• What really moves the needle for HELOC rates
• Case studies and scenarios

What is DTI and why do lenders care?

Your debt-to-income (DTI) ratio compares your monthly debt to your income. Expressed as a percentage, it helps lenders assess your debt burden so they can predict whether you will meet your repayment terms or default on your loan.

DTI thresholds that really matter for HELOC approval

Just like your credit score, there are specific thresholds for your DTI ratio. These vary by the type of loan but generally remain consistent among lenders.

DTI ratio thresholds:

Ways to lower DTI before you apply for a HELOC

In order to get the best rate, there are a few steps you can take to decrease your DTI before applying.

1. Debt repayment prioritization strategy

It can be a better idea to prioritize some debts over others in order to improve your DTI ratio the fastest.

There are two strategies that can help here.

• Debt snowball. This involves paying the smallest loans first before eventually working your way up to the biggest debts.
• Debt avalanche. The debt avalanche method is the exact opposite, as you pay the largest debts first and then work your way down to the smaller ones.

2. Timing your HELOC application

It is important to apply for a HELOC at the right time so you don’t damage your credit score on a loan you won’t be approved for.

These are some of the best times to apply for a HELOC.

• You have enough equity built up. Most lenders suggest at least 15% or 20% equity for a HELOC.
• Interest rates are low, decreasing your monthly payment.
• There is an urgent home improvement need that cannot wait.
• You need an immediate, but affordable, debt consolidation loan.
• There is an emergency expense that cannot wait.

3. Income-boosting tactics

Higher income can help you tackle debt, improve your credit score and clean up your credit report, all while lowering your DTI. Just be sure to keep all documentation to show to your lender later.

There are a few ways to boost your income:

• Ask your boss for a raise.
• Get a side gig or part-time work.
• Switch to a higher-paying job.

4. Recasting existing loans

Different from refinancing, a mortgage recast can help you reduce your monthly payments to make your mortgage more affordable.

To do this, you make one large lump-sum payment, allowing your lender to reamortize your mortgage balance. Your interest rate and term remain the same, but your payments decrease, giving you more money in your monthly budget.

5. Avoid new credit

The idea here is to reduce the amount of debt you have, not increase it. New credit inquiries and additional debt can not only reduce your credit score, but they can also give you a higher DTI ratio.

This could lead to higher interest rates on your HELOC or a flat-out denial.

6. Balance transfers vs. consolidation loans

Balance transfer loans and debt consolidation loans operate similarly. However, balance transfers consolidate credit card debt, while debt consolidation loans consolidate different types of loans.

Balance transfer cards often have a 0% introductory APR, and while debt consolidation loans may also offer an interest-free introductory period, they typically also carry origination fees and a potentially higher interest rate.

Credit report strategies that indirectly lower DTI impact

There are a few credit report strategies you can use to help lower your DTI so you can get a better HELOC interest rate.

Maintain a credit mix

Be discriminating with the types of credit you have, as this makes up 10% of your credit score. Be careful to diversify your credit, mixing different types like credit cards, personal loans and car loans.

Also, be sure to keep your oldest account open to establish a long-term credit history.

Report rent and utilities

Request that your rent and utility payments be reported to the major credit bureaus. This can help build a positive credit history and increase your credit score.

However, this can backfire if you fall behind, so only do this if you are sure you can make all your payments on time.

Report errors and outdated information

Monitor your credit report for any inaccuracies. You can file a dispute with the credit bureaus to have any discrepancies removed from your report.

It is also important to request the removal of any outdated information so your credit isn’t negatively impacted by information that shouldn’t be there.

DTI vs. other factors: What really moves the needle for HELOC rates

HELOCs generally have variable interest rates, which means they fluctuate over time. This is due to several factors.

1. Benchmark. HELOC interest rates are generally based on a benchmark, such as the prime rate. This is added to the lender’s margin, making up your total HELOC interest rate.
2. Credit score. Your credit score will weigh heavily on your interest rate. The higher your credit score, the better your interest rate will be.
3. Loan-to-value ratio. Your loan-to-value ratio (LTV) compares your loan amount against your home value. Lenders tend to offer more favorable rates to borrowers with lower LTV ratios.
4. Credit line. The size of your credit line may also impact your interest rate, with lenders generally looking for 80% to 85% of your equity.
5. State taxes. If your state has a mortgage recording tax, your lender may give you a higher interest rate to account for it.

Even if your DTI ratio is on the higher side, these other factors may help you get a better interest rate on your HELOC.

Case studies and quick scenarios

Sarah has an annual income of $75,000, earning $6,250 per month. Her monthly debt is $3,000, resulting in a DTI ratio of 48%. This is still acceptable for a HELOC but on the higher end of the spectrum.

However, says she gets a side gig, and her gross income raises to $90,000. She is also able to reduce her monthly debt to $2,500. In this case, her DTI would improve to 33%, assuming she maintains the same income.

Mike earns less, bringing home a total gross income of $45,000 with a total of $1,200 in monthly debt. His DTI is 32%, which is considered good. However, he suddenly gets a major promotion, and his income goes up to $60,000 but his monthly debt remains the same. In this case, he would have a DTI of 24% – enough to earn him a favorable interest rate in most cases.

To help determine your interest rate, use a DTI calculator that can help you run the numbers for your own DTI ratio.

The bottom line on lowering your DTI for a top HELOC rate

Lowering your debt-to-income ratio isn’t about perfection but positioning yourself as a stronger borrower before you apply. By paying down the right debts, increasing documented income, and avoiding moves that inflate your DTI, you can improve your odds of qualifying for a HELOC with a more competitive rate and manageable monthly payment.

Since every lender weighs DTI differently, taking time to understand your numbers and compare offers can make a meaningful difference in both what you’re approved for and what you’ll ultimately pay.

When you’re ready, running the numbers and exploring your best HELOC options can help you tap your home equity with confidence.