Overview of HELOC Underwriting
The Goal
Give your underwriting and operations team a clear, plain-language explanation of how the platform calculates the four key metrics that drive every HELOC decision.
The Four Questions Every Loan Must Answer
Metric | Question | Formula | What Fails It |
DTI | Can they afford the payment? | (All monthly obligations) ÷ Gross monthly income | Consumer debts + mortgage payments exceeding threshold |
CLTV | Is there enough home equity? | (Existing liens + HELOC amount) ÷ Property value | High existing mortgage balance or low AVM valuation |
Credit Score | Have they repaid debts reliably? | Soft pull → hard pull at closing | Below minimum score threshold for product |
Eligibility | Does this loan meet guidelines? | Rules-based compliance check | Property type, state restrictions, investor requirements |
DTI in Detail
DTI = Total Monthly Debt Obligations ÷ Gross Monthly Income
Monthly debt includes three sources all must be present for an accurate calculation:
Credit Report Liabilities auto loans, student loans, credit cards (Debts tab)
Housing Expenses first mortgage, property taxes, HOA dues, insurance (REO tab)
Qualified HELOC Payment calculated at the fully indexed rate on the requested line size, not the teaser rate
⚠️ Critical for Underwriters |
• The Debts tab in the UI shows only consumer debts — mortgages are in the REO section. The engine aggregates both. |
• Any change to property value or loan amount triggers automatic recalculation of both DTI and CLTV. |
• A borrower can move from Pre-Approved to Ineligible if a data refresh adds a previously missed REO payment. |
CLTV in Detail
CLTV = (Existing Liens + New HELOC Amount) ÷ Property Value
Property value is initially set by the Automated Valuation Model (AVM) later validated by appraisal
A higher CLTV = higher risk = potential reduction in approved credit line or increase in rate
CLTV recalculates automatically if property value or loan amount is updated
Engineering & Audit Transparency
All underwriting calculations are performed internally and stored for full audit access:
Every input (income, liabilities, AVM value) is logged per calculation
Underwriters can review the exact rationale behind any approval or denial
Data is consistent across POS, LoanCraft pricing engine, and Encompass LOS
✅ Pro Tip |
When preparing for a regulatory exam, use the Audit Log export to pull the full input/output trail for any loan file available under the Compliance tab |
If a borrower disputes their home value, the AVM source and methodology can be shared from the loan record |