Key Takeaways
- Your DTI affects HELOC approval, with most lenders setting maximum ratios between 43% and 50%.
- You can lower your DTI in a short timeframe by paying down revolving balances, paying off smaller installment loans, or documenting higher qualifying income within weeks or months.
- Your DTI also affects HELOC terms, as lower ratios can qualify borrowers for lower interest rates and higher credit limits.
Your debt-to-income ratio might be the one number standing between you and HELOC approval, and unlike your credit score, it’s something you can often improve in a matter of weeks. Lenders use DTI to gauge whether you can comfortably handle another monthly payment. Below, we’ll walk through exactly how to calculate your ratio, what thresholds lenders look for, and the most effective strategies to lower your DTI before you apply.
In this article (Skip to...)
- Why DTI matters
- DTI requirements for HELOCs
- Calculate your DTI
- How to lower DTI
- DTI mistakes to avoid
- FAQs
Why your DTI matters for HELOC approval
Lenders view debt as an indicator of risk. A higher DTI ratio suggests a significant portion of your income goes toward debt, raising concerns about your ability to manage additional payments. A lower DTI indicates greater financial flexibility, improving your chances of approval and potentially qualifying you for better rates or higher credit limits. The less strained your finances appear, the more likely a lender is to extend credit.
Compare HELOCs with multiple lenders. Start here
What DTI ratio is required to qualify for a HELOC?
Most HELOC lenders require a DTI of 43% to 50%, though requirements vary by lender type and your financial profile. Credit unions and online lenders are often more flexible, particularly if you have a high credit score or significant home equity. Generally, lenders set HELOC DTI thresholds according to their risk tolerance.
| Lender Type | Typical Maximum DTI |
| Traditional banks | 43% or lower |
| Credit unions | 43% to 45% |
| Online and non-QM lenders | Up to 50% or higher |
How your DTI affects your rate and credit limit
Even if you qualify with a higher DTI, you may not get the best terms. Borrowers with lower ratios usually receive better interest rates and larger credit limits because they pose lower risk. Reducing your DTI before applying can lead to significant savings over the life of your HELOC.
How to calculate your debt-to-income ratio
Before applying, determine your current DTI. Calculating your ratio takes only a few minutes and shows whether you meet lender expectations.
Compare HELOC rates. Start hereStep 1: Add up all monthly debt payments
Include every recurring debt obligation that shows up on your credit report:
- Mortgage or rent payment
- Auto loans
- Student loans
- Minimum credit card payments
- Personal loans
- Child support or alimony
Utilities, insurance premiums, and subscriptions are not included in your debt-to-income ratio, as they are not considered debt obligations.
Step 2: Determine your gross monthly income
Gross income is your earnings before taxes and deductions. This includes salary, bonuses, overtime, rental income, alimony received, and other documented sources of income. If you are self-employed or have variable income, lenders usually average your earnings over the past two years based on your tax returns.
Step 3: Divide total debt by gross income
The formula is straightforward:
(Total Monthly Debts ÷ Gross Monthly Income) × 100 = DTI percentage
For example, if your monthly debts are $1,800 and your gross income is $5,000, your DTI is 36%. This is a strong position for most HELOC applications.
How to lower your DTI before applying for a HELOC
If your DTI is higher than desired, several strategies can help you improve your ratio in the weeks or months before applying.
Find your lowest HELOC rate. Start here1. Pay down revolving credit card balances
Minimum credit card payments directly impact your DTI. Even if you pay your balance in full each month, lenders consider the minimum payment shown on your credit report. Reducing balances lowers your minimum payment and your DTI. Prioritize cards with the highest minimum payments or the highest interest rates to maximize savings.
2. Eliminate small installment loan balances
If you have a car loan or personal loan with a few payments remaining, consider paying it off in full. Eliminating even one monthly payment can significantly improve your DTI, especially if the remaining balance is small, but the payment is large.
3. Refinance to lower your monthly payments
Refinancing existing debt, such as auto or student loans, to a longer term can lower your monthly payment. Although this may increase total interest paid, the reduced monthly obligation improves your DTI for HELOC qualification. Consider this option if qualifying for the HELOC is your priority and you are comfortable with a longer repayment period.
4. Avoid taking on new debt
Before applying, avoid taking on new debt, such as financing large purchases, opening new credit cards, or cosigning loans. New debt increases your DTI and may result in hard credit inquiries, which can concern lenders. If you plan to make a major purchase, such as a car or furniture, wait until after your HELOC closes before financing it.
How to increase your income to improve DTI
Since DTI is a ratio, increasing your income is as effective as reducing your debt. Below are practical ways to document higher income for your lender.
- Document a recent raise or promotion. If you’ve received a raise, make sure it’s reflected in your recent pay stubs before applying. Lenders use documented income, not verbal promises or offer letters for future increases.
- Add a co-borrower to your application. A spouse or partner with income can be added to boost the household’s total income, thereby lowering the combined DTI. Keep in mind that both parties become responsible for the debt if you go this route.
- Verify side income or freelance earnings. Gig work, freelance income, or rental income may be included if you can document it, typically with two years of tax returns. Gather documentation early to address any gaps before applying.
HELOC vs home equity loan vs cash-out refinance DTI requirements
If you are considering using your home equity, it is important to understand how DTI requirements differ among available options.
| Product | Structure | Typical DTI Flexibility |
| HELOC | Revolving credit line | Moderate (43%–50%) |
| Home equity loan | Fixed-rate lump sum | Moderate (43%–50%) |
| Cash-out refinance | Replaces first mortgage | Varies by loan type |
- Home equity loan DTI limits: Home equity loans often have DTI requirements similar to those of HELOCs. However, because the payment is fixed and predictable, some lenders may be slightly more flexible.
- Cash-out refinance DTI limits: A cash-out refinance replaces your existing first mortgage with a new, larger loan. DTI requirements vary significantly depending on whether you’re using a conventional, FHA, or VA loan. FHA and VA loans typically allow higher DTI ratios than conventional loans.
Common DTI mistakes to avoid before your HELOC application
Even well-prepared borrowers can unintentionally harm their DTI before applying. Here are common pitfalls to avoid.
Review your home equity options. Start here- Opening new credit cards or loans adds to your monthly debt obligations and results in hard credit inquiries. Both can negatively affect your HELOC application, even if you do not carry a balance on the new account.
- Making large financed purchases, such as furniture, appliances, or a vehicle, increases your DTI. If possible, wait until after your HELOC closes to make major purchases to protect your chances of approval.
- Cosigning for another borrower counts as your debt for DTI purposes, even if you are not making the payments. Avoid cosigning for others in the months before your application to prevent an unexpected DTI increase.
See if you qualify for a HELOC now
Lowering your DTI can put you in a stronger position before you apply, but the only way to know where you stand is to check your eligibility. Start by reviewing your current ratio, then take steps that lenders recognize, such as paying down balances or documenting qualifying income.
Once those changes are in place, speaking with a lender can confirm whether you meet current DTI guidelines and what HELOC terms you may qualify for today.
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FAQs about lowering DTI for a HELOC
Yes, lenders estimate your future HELOC payment based on the credit limit you're requesting and add it to your existing debts when calculating your DTI for approval. This is why your current DTI before the HELOC matters—it determines how much room you have for the new payment.
Some lenders offer flexibility for borrowers with strong compensating factors. Excellent credit, significant home equity, or substantial cash reserves can sometimes offset a higher DTI. However, you may face a higher interest rate or a lower credit limit as a result.
Starting at least two to three months before applying gives you time to pay down debt, document income changes, and ensure updated information appears on your credit report. Credit bureaus typically update account information monthly, so changes won't show up overnight.
No, DTI limits vary by lender; banks, credit unions, and online lenders each set their own thresholds based on their risk tolerance and loan programs. Shopping with multiple lenders can help you find one whose requirements match your financial profile.
