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Have $120k equity but can't get at it because of 580 score


Dylan
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I estimate that our house is worth $600k now and we owe $480k on it. My wife has gone back to school and we did a poor job planning for it. We've made some dumb choices and charged up our credit cards rather then use our home equity. We always theought the equity would be available to us when we wanted it. But due to the high utilization and a some recent lates our credit scores have dropped 100 points in the past year and are now around 580 and our credit options are limited.

We'd like to refi our second to give us a combined LTV of 90%. This would allow us to pay off our revolving debt and have money for my wife's tuition going forward.

But we can't find anyone who will finance us beyond 85% because of the sub 600 scores. While 85% would give us some money to use it costs us a lot because we would be replacing our existing 2nd that is financed at a competitive rate with a new loan that is at a sub-prime rate. We're also being asked to pay big closing costs of 3-5 points.

I feel like such and idiot for pissing away our valuable credit rating with stupid stuff like late payments and unnecessary credit card usage. But the situation is what it is now and I'm trying to make good choices for the future. We took an honest and overdue look at our financial situation and it's not pretty. We will not be able to keep up with bills and pay my wife's education expenses unless we get some cash and move our credit card debt to a loan that is lower interest and tax deductible.

I would appreciate any help and suggestions. Thank you so much.

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You should still be able to get a stand alone second mortgage to take care of what you are needing, but the interest rates may be not be as pretty as you may like to see.

With less than 600 credit scores, it does dry up some of the better options regarding seond mortgage lenders, but financing could still be available as long as everything else fits together on your loan.

Since you are already running farther and farther behind on your obligations, then you will have some tough choices to make regarding the finances, and what to consolidate and what should be left out of a consolidation. Then again, the lender may make that decision for you as well, to make the loan fit their guidelines.

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I wish my experience matched what you are saying. But I've yet to find a lender who will go to 90% LTV without a 600 score. I'm still trying, though. My best chance may be for my broker to ask for an exception using my strong income/job history and reasonable DTI as compensating factors.

Argh! This is so frustrating. I had no idea how easy it was to turn a good credit score into a bad one. I earn a good income and no one has ever lost money on me. I may have been late a few times but I've always paid the bills. Foolish me for thinking these would be the criteria that would matter to lenders.

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If you can straighten things out in a year, one plan to consider might be to go into a 1 year ARM and take out your 90-95% LTV. yes the rates won't be good, but not bad either, you would just have to check it out.

The idea is that you can pay off your credit card bills, stay in a good shape until your wife is out of school, then refinance back into decent rates. I have seen a 80 point increase in scores in a year with good payment record and good utilization.

Charles

I forgot, with that size of a loan, your closing costs should not be near the % that you mentioned.

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  • 1 month later...

Update:

I was unable to find a lender who would go above 85%. But the lender I chose did an automated valuation model on my house and it came back higher then I expected. So I decided to go with this lender and they ordered the appraisal. The appraiser was incompetent and made errors and used terrible comparables and it came back too low. After several rounds of arguing with a middleman management company (neither me nor the lender was allowed to deal directly with the appraiser), they wouldn't fix the errors or use better comparables. All they would offer is to order another appraisal and if the difference came back greater than 8% they would cover the cost, else I would cover it. Well, 8% on $600k is $48k which is quite a large acceptable variance. We were about $30k off and I wasn't going to pay another dime to these people.

amortgateman, you asked about it being a rural property. I do live on 10 acres in a semi-rural area. Exburbs is the new trendy word for areas like mine. I'm 50 miles west of Washington, D.C., or about 10 miles outside of the dense suburbs. My area is a mix of farms and newly developed "estate" properties. This came up during the appraisal process. One of the issues is that they would only count my property as 5 acres so it wouldn't be classified as rural. But then they used comparables of 10 acres and actually deducted $10k from my value because they were only counting mine as 5 acres. Huh?

So now I'm back to square one. I've solved my immediate cash flow problems by using retirement money to pay for my wife's education. But this is only a temporary fix. Any suggestions?

If you are a broker who can work in Virginia, you may PM me and we can talk.

Here's a quick summary of the numbers:

1st mtg - 404k (has a prepay penalty)

heloc - 75k

House value:

My estimate: 600k

Automated valuation: 610k

Bad appraisal: 580k

My original goal was to get a new 2nd of $135k which is 90% of 600k. But given reality I'm flexible on this. I'm willing to order and pay for another appraisal if I can choose an appraiser who is competent and familiar with my area.

Thanks for reading this long message. :)

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