First off, I would like to say I really like your web page. Now, maybe you can help me with my problem : )
My mom and dad recently got a divorce. My mom was left with almost nothing in the settlement, and is now in need of support from myself. So, here is the scenario….
I currently have 7100 credit card debt, and owe 7500 on a car……that’s literally ALL my debt.
Second: My mom is the owner of a 160k dollar house, paid in full.
So, my goal was to take out a 70k refinance loan to pay off all my debts, and generate some income for my mom. In doing so, at a reasonable fixed interest rate, my payments would be quite easy, because, I gross 3100-3500 a month (depending on how much call I take at the hospital). In addition to that factor, in 4 years, my mom is going to get Social Security of about 700 a month, so, the first 4 years will be fairly easy, and after that, they will be CAKE.
Likewise, the LTV ratio would be less then 50% on the debt. I have also spent countless hours doing some research, and realized I could afford a 3/27 ARM, for 70k, if the rates began at about 5%, and had a balloon cap of 6%. Even at the ballooned rate, I could afford this loan, if the initial rates were higher, I would simply take out less money.
So, everything seemed to be on my side when I went to the bank, I had everything in order, had sufficient income, sufficient collateral etc. As a matter of fact, I got some quotes on the house, for instant cash, that offered to pay around 95k, another factor I thought was on my side, because, the bank could immediately make 25k on the loan, even if I didn’t pay a single penny, within a few days of selling the house to an investo r. So, I walked into the bank with a good feeling inside, but then, that feeling quickly faded.
When they ran my credit check, they found that a Comcast bill had been sent to collections, even though it was Comcast’s mistake (and I have since got them to take the balance off), it docked my FICO score to 633, which of course, to the bank, is ALL that matters. Forget the fact that I can pay the loan easily with my income, and forget the collateral…..that’s ALL the bank cared about.
Consequently, I was pretty much denied on the spot. The core issue is this, if I begin supporting my mom now, I will be permanently stuck in my financial situation, never repairing the credit balance. My mom won’t be able to get a car, we won’t have any income etc. What will end up happening, is we will have to cash out the house at a loss and start over.
My entire intention trying to get this loan, is clearing my debt, rebuilding my credit, and taking care of my mom. I was wondering, do you know any lenders that can help me? Any lenders that perhaps would not be so focused on a FICO score, that is not only inaccurate, but is only a tiny factor in my financial ability (probably even no factor at all). I’m willing to take less money at a higher interest rate, and I certainly would not do this if I couldn’t pay it off. I want to keep the house and build a future. I would appreciate any help you could offer.
PS: Feel free to post this on your blog, but I would appreciate leaving my name out of it.
Let’s start with Comcast:
“… a Comcast bill had been sent to collections, even though it was Comcast’s mistake (and I have since got them to take the balance off), it docked my FICO score to 633, which of course, to the bank, is ALL that matters.”
So the collection has to be removed. That’s usually rather easy, but you have to submit FACTUAL disputes. An example:
I can’t give you specific info because it depends on YOUR situation and who reports.
So now that your FICO score is fine, let’s talk about the MORTGAGE:
“I could afford a 3/27 ARM, for 70k, if the rates began at about 5%, and had a balloon cap of 6%.”
Why would you even THINK about an adjustable rate mortgage when fixed rates are so low?
And I sure hope that you’re not considering a “balloon” payment, meaning that the mortgage has to be paid off in a few years. You probably mean an interest rate cap of 6% over the start rate. That would make it 11% – an OUTRAGEOUS interest rate when you could have a FIXED rate for 5% or less.
Many lenders have MINIMUM loan amounts of $50k or $80k because they get paid a PERCENTAGE of the loan amount for all “agency” loans (HUD, VA, FNMA, etc.). If a lender wants to make $4,000 on a $100,000 loan, they’ll charge 4 points. If the loan amount is $50,000, you’d have to pay 8 points.
I would NOT recommend applying with any bank, but instead find an “honest and competent” mortgage broker. Brokers work with many lenders and can “shop” your loan.
The problem is that there are very few honest brokers and you essentially have to make sure they do their job and don’t deceive you.
Here is a related blog about lying bankers:
The blog name should be “Provident Bank Mortgage bait and switch tactics.” This weekend I’ll finish our complaint to the FDIC and OTS and it should be posted after my clients mailed it off next week.
These are the WHOLESALE rates and of course banks and brokers add their profits.
Also, I’m assuming that you will become a co-owner of the house and you need to let loan agents know that it will be part of the transaction.
And a word of caution:
“In addition to that factor, in 4 years, my mom is going to get Social Security of about 700 a month, so, the first 4 years will be fairly easy, and after that, they will be CAKE.”
That’s the BEST case scenario. What if one of you gets sick or has an accident? A gazillion things could happen. I’m not trying to be overly negative, but there is simply no reason to pay 10% interest on a mortgage when you don’t have to just because you expect an extra $700 in income.
What you’re trying to do is fine, but you really should go for the best deal on a mortgage.
Additionally, I’m ASSUMING that you’re living in the house (you mentioned no rental expense) and I would certainly consider FINANCING a car for mom and keeping the house free and clear. With your income and NO rent, you should be able to live well and pay your credit cards off within a few months.
You could also just get a HELOC (home equity line of credit) for emergency expenses. OR, your mom could get a REVERSE MORTGAGE.
“So, my goal was to take out a 70k refinance loan to pay off all my debts, and generate some income for my mom.”
Getting a mortgage is NOT generating income.
You are generating DEBT.
You gave me lots of info, but there’s a lot more to know about your situation, it’s not your average refi. You really need to run the numbers and discuss your situation with some brokers.
And remember that every time they run your credit you probably LOWER your FICO scores, so make sure you state IN WRITING that they are NOT authorized to get your credit. AFTER you got the Comcast collection deleted you should select a broker to work with — if you really want to get a mortgage.
There is a LOT to be said for owning your home free and clear. After all, few people who lost their homes to the banks planned on it.
I also started a new blog:
Wish I had more time, there’s so much to post.
Filed under: Refinancing and