Why You Won’t Be Able To Use A HELOC in Retirement

All these people saying reverse mortgages are scams and you should do ANYTHING to avoid them tell you to do a Home Equity Line of Credit (Heloc) instead. This is insane advice.

Why? because if you’re income strapped, I assure you, you will NOT qualify for a home equity line of credit.

To qualify for a HELOC you will go through underwriting. The underwriting consists of your equity in the home and your income streams. The bank then looks at your Debt to Income(DTI) ratio to ensure you have the income to support the potential increase in debt.

So, let’s say you are shooting for a $100k line of credit. You need to be able to support a 1% payment. That means $1,000 a month in addition to whatever your other debt is.

If you are living off $36k a year, a 1% payment on your HELOC means that your DTI is 33%. $12k/$36k = 33%.

If you have other debt, say a first mortgage or a car loan etc. you’re going to have a very hard time qualifying for this HELOC.

Oh, I hear you saying, “But I wont use the entire $100k line, only $25k!”

Doesn’t matter. Bank needs to make sure you can support the FULL use of the line, that $100k and they will underwrite accordingly.

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