Mortgage or HELOC or ??

Financing, Hard Money Lenders, Private Money
1

Which type loan should we be seeking?

We have been trying to get a mortgage since last October, but maybe we should be seeking some other type of loan? Here’s the situation.

The wife and I purchased a single family foreclosure June ’06 for $37,500 cash. We own it free and clear, no liens on it. It is our primary residence.

We were able to do some work to it over the last few months with the little reserves we had on hand. But it needs more work and in order to do that we needed to get some working capital. Plus we want to pay off 3 other loans we have.

Which are:

Auto loan at $16k balance @ 20% apr $386 monthly
LOC 20k balance @ 25% apr $424 monthly
CC $7800 balance @ $150 monthly
Total $43,800 $960 monthly.

We went to our local bank where we have our checking and savings accounts and they said they couldn’t help us without at least a 620 score. They do have a sub-prime program for borrowers “like us” but you have to have owned the property for at least 12 months. We learned what the term “seasoning” meant in the mortgage industry.

I went to Lending Tree (or something similar) and got 3 potential mortgage offers. After talking to all 3 we went with the one who offered us the best deal. (of course) We got the paper work together and ordered the appraisal ($300). The appraisal comes back at $64,500. We were told we should have a closing date by December 6th or very soon after since that will be the 6 month seasoning date. It is now the week before xmas. The date comes and instead of closing we were told it was denied. Lack of seasoning and low score we are told. But the “good” news is he sent all our information over to another broker who can get us through cause they don’t care about seasoning. And he can offer us all the same terms and even increase our LTV from 85% to 95%. EXCELLENT!!
This new broker tells us this loan should be no problem at all. And if it were not for everyone working with a skeleton crew due to the holidays, he would be able to get this closed within a week.
We are told we will need another appraisal since the one done just 2 weeks ago is not in their name. Luckily the appraiser cuts us some slack and only charges us $150.00.

It is now the first week of January. We are told once they get the appraisal it should only take about 72 hours to get a clear to close. They got that appraisal over a week ago. Now they tell us underwriting is really busy and they are still working on it. Have not heard from them in over a week.

(I won’t even get into telling you about another broker I talked to on Monday who told me how easy this loan will be to do. I have not heard back from him despite promising me he will call me either way)

This morning I decide to talk to a lender instead of a broker. Countrywide is who we had our previous mortgage through. He pulls our scores and tells me he is looking at a 620 for the wife. Perfect! He can do 95% LTV, no prepay, fixed 2 years, 12.25%. Not the best, but beggars can’t be choosers. A $642 monthly payment beats a $960 monthly payment (the 3 loans above we want to pay off with the loan). Better interest rate then the ones on the loans we will be paying off. Plus tax deductible. He will even take $150 off his fees to cover the cost of the appraisal since it will be the 3rd in about a month. (yeah ok whatever).

He is saying he should have a closing date by next week. I will believe it when I see it.

I am just trying to figure out why we can’t get this done. At first I thought it was our scores and/or lack of seasoning. Now I am thinking it might be because a $61k loan is probably not worth the time it takes to write. Despite how much sense it may make.

I have not spent to much time inquiring about a HELOC. It would seem to make sense since we have $64500 worth of equity. But I seem to remember talking to someone about a HELOC at some point and was told it was not an option for some reason. I forget now. Maybe I should find out what that reason is huh?

Anyway sorry for the long post. Just figure sometimes you put it out there and someone might have some suggestions.

You just never know.

Thanks

2

The reason for your loan problems, is that most banks are going BK. Some of them are no longer in the retail side. Sad part. 80% of most brokers do not know the business.

3

motomech10,
I am in the same situation now. I bought a foreclosed duplex 9 months ago. Fixed up one side myself and moved in. In Nov. I started looking to refinance with a local broker to pull about 20k out to fix up the other side. I am still jumping through hoops with them but now have 4 other lenders looking into it for me. One acually was going to do a HELOC for me and sent it to the underwriter who could of done it at very good interest rate but had to decline because I hadn’t had a credit card for 2 full years. That was with Quicken Loans. They may be able to help you. I feel your frustration though. Good Luck!

4

Sounds like you could benefit by adding a seasoned trade line to your history.

5

What is a seasoned trade line and how do you add it?

6

Here is a whole thread on the subject.

http://www.reiclub.com/forums/index.php?board=26;action=display;threadid=21784

7

Thanks!

8

Moto,

12% is steep. From your posting I can see you are correct you will be saving money monthly, but you may want to shop around a bit more for a better rate. You also might consider refinancing the car note to a lower rate (Capital One will refinance a car note at 6.45%), and not paying it off. By rolling it into the note you will be paying on it for 30 years or until you sell the house. So after this car is long gone and you are financing another vehicle in the future you will still be paying for this car as well. Judging from the rates you posted on the car (20%)and the line of credit (25%) it looks as if you are not shopping around too much before you are committing to these things. Those are like mob interest rates. At 25% apr on the credit line you are paying $416 per month in interest leaving your principle balance only dropping by a few dollars a month. Also, will you be closing the credit line? If not you face the prospect of running it up again and facing more problems. I don’t want you to think I am putting you down, I have just seen people do exactly what you are doing and then getting themselves back into trouble in less than two years because they don’t change their habits.

9

Pure,

You might want to be careful having that many lenders working on your loan at the same time. That means your personal information is being spread out over god knows how many companies, especially if the lenders you are talking about are brokers. No offense to brokers, I broker plenty of loans myself. If all of those people are pulling your credit, then sending the file out to be graded by a wholesale lender who may in turn use their credit system and you are are talking about a whole lot of credit hits, as well as possible lender overlap. Good luck.

10

Cristopher W,
I appreciate the advice. I two of them are 3 are brokers and one is a direct lender. I did not even think about them sending the loan to the same lenders. I just got so frustrated with my first broker stringing me along and asking for more and more stuff. They even want me to put furniture in the empty second unit so it looks owner occupied. I would like to establish a relationship with just one lender/broker and keep doing deals with just them. This being my first deal and not even having a credit score when I started I am learning and going through a lot. I love it though and wouldn’t change a thing. Agian, I appreciate the advice. This website, the help and real world information and expertise have been a huge help and motivator. Thanks! Avi

11

I don’t want you to think I am putting you down

No insult taken. I appreciate the feedback.

I have just seen people do exactly what you are doing and then getting themselves back into trouble in less than two years because they don’t change their habits.

Let me begin by saying we now have a very good grasp of how things work with regard to our credit. We learned through the school of hard knocks. And it wasn’t always because of bad habits. Sometimes bad things happen to good people. Within a 10 year span I had 2 serious accidents which left me unable to work for extended periods of time. Being self employed that can be tough to overcome. Which is why we are taking the steps we are taking now in order to improve things.

12% is steep

Yes 12% is steep, but paying off the higher interest while lowering the monthly payment and getting the tax break makes sense right now.

you may want to shop around a bit more for a better rate…. it looks as if you are not shopping around too much before you are committing to these things.

Trust me we have. The answer is always the same. “Due to your low scores……” That is how we ended up with the high rate on the auto. We just did not have many options at the time and this vehicle is a necessity for us.

Also, will you be closing the credit line?

The high rate on the LOC didn’t start out that way. And once it is paid off, if they won’t give us a lower rate (I don’t expect them too) we will close it.

What I left out of the post is our plan to sell the house this summer. If things go as planned we expect to make enough to pay off the mortgage, and still have enough for a deposit on the next project. Yes, we are doing the rehab thing. This will be our second project in a year. If it goes well we hope to have at least one maybe two more going by the end of this year.

We are going to work our way out of this, but going forward we plan to be borrowing under our terms.

12

Moto,

Sounds like you have gotten things well under control. Too many times people take out debt consolidation loans, pay off the debt, then go right back out and start using the cards again and get themselves right back into debt. The only thing I would advise you to do is look into refinancing the car instead of rolling it in to your house payment. The amount of interest you will pay on that debt over the life of the loan is staggering. After all is said and done you could have been driving a rolls royce. Just kidding. Good Luck going forward. :slight_smile:

13

Pure,

I would avoid any broker or lender who is advising you to lie about occupancy, or, income, or anything related to the loan. Mortgage fraud is becoming a HUGE hot topic lately and as more and more lenders start closing their doors the boys in black suits are going to start knocking on doors asking questions. You DO NOT want to be part of that. The easiest way to find a good broker is to ask friends and family for a recommendation, and then ask that broker for references. If a broker does not have at least two or three people that you can contact and inquire about performance then their is something amiss. Hope this helps.

14

The amount of interest you will pay on that debt over the life of the loan is staggering.

With any luck it will be paid in full before the end of the year.