will a home equity loan hurt my debt to income ratios everely?

Question

Im also thinking of opening a small business in the future....just wondering if this will have an effect on it

Answer 1

I don't know where you live, but you can go to any local mortgage lender's website and they will have special calculators to use for figuring things like this. Generally a DTI ratio if figured by the lender and it does help determine what type of loan, what interest rate and even if you can get the loan. Anything over 50% DTI, won't get approved. Although, again, I don't know in which state you live, your guidelines may be different.

But remember, if you decide to get a home equity loan, and you are using it to start a business, then your home is ON THE LINE for the business. So if the business doesn't take off like you believe it should and you're not making money then you may lose your home.

Instead you could go the local places, banks, credit unions, lenders, to try to get a "small business loan" for startup costs and the costs to run for a set period of time. You also might try contacting " SCORE", (Senior Counselors of Retired Executives), they give free advice to people trying to start up businesses and they are all experienced 'retired' business execs. The SCORE Association is a nonprofit association dedicated to entrepreneur education and the formation, growth, and success of small business nationwide and they are also a resource partner with the U.S. Small Business Administration. They provide FREE consulting services to both start-up small businesses and existing small businesses.

You can click on or copy and paste into the address bar, the address below to find the chapter closest to you.

Answer 2

First and foremost, to answer this question, I need to be totally honest with. Unless you have absolutely no other options, do not take out a home-equity loan; and please stop worrying about debt-to-income ratios.

If you're committed to opening a small business, you need to be more concerned with income-to-savings ratio. Debt is just that, debt. Any loan or the like, is simply a way of redirecting your future earnings; and the bank is going to make you pay a penalty (called interest) for doing so.

Here's a quick (guestimated figures) of what a home equity loan will do your small business. For every percentage of interest on your loan, you lose three percent of your business. Why three percent? Well one, you have to make up for paying the interest to the bank (lost money); second percent, you have to pay back the money; third if you took the amount of money you will be paying back both the principal and interest and put it into savings - the compound interest alone could equal a fourth percentage point.

So you could be looking at a 4-to-1 loss on your money and that's if you have a 1 percent interest rate on your loan and your savings.

Let's say you get a nine-percent loan and the average mutual fund is drawing 10 percent. Just in interest you're facing a 19-percent loss on your money - and that doesn't factor in compounding of the mutual-fund interest.

If you want more advice, better than I can give for sure, try Dave Ramsey (daveramsey.com). He is a no-nonsense guy, put's it straight. He has a daily radio show and posts pod casts on his web site.

He offers some great tips on how to do away with your debt and put yourself in great position for saving and getting the ball rolling on your future.

Hope this helps,
lawrence

Answer 3

Home equity lines definitely affect your debt to income, even if you do not have anything drawn out of the account when you apply for loans in the future lenders will still view the line as being fully drawn when calculating your debt because technically you could draw it out at any time. So when calculating your potential debt to income make sure to include the full monthly amount that you would have to pay if the heloc was fully drawn.

Answer 4

If you are a first time borrower of a home equity loan it is imperative that you have a checklist of essential questions that you need to ask each and every lender. The answers to these questions will provide a valuable reference to base your comparisons on. What’s the interest rate? Knowing this is crucial. The interest rate will determinepercentage by which the adjustable rate will change. What is the Annual Percentage Rate or APR? The APR on the home equity loan will determine the yearly payment you will need to make towards this.The higher the payment in terms of points, the lower is the interest rate.

Answer 5

Your bookkeeping for your business should not be mixed with your personal expenses.
But when you are looking for a business loan-all your debt will be considered. . .unless you have limited you liability.