Piggyback refi or HE/HELOC (or other options?) (getting approved w/ high until)

[Simmoja3]

Hey all,

I'm hoping to run a scenario by some experts (i.e. anyone who understands better then me, so probably everyone on this board 😛). 

I currently have a $540K FHA loan on a home valued somewhere between $680K-$700K, in year 3 of a 5/1 ARM at 2.875%. Due to a series of events over the last 2-3 years, I've got about $100K in other debt - combo of cc and personal loan. As a consequence I'm maxed out on the credit cards, so util has tanked my score (~650), and payments on all this are killing me (DTI works out to about 53%). 

As mentioned my mid-FICO is 654 right now; I'd imagine in a couple months when I at least get some of these cards out of "maxed out" status it'll bump up to the 660s-670s but probably not much higher any time soon. No serious baddies - 2x30 days back in 2011; two years ago (with no other changes except utilization and adding this personal loan) was at 730. 

Im trying to get some insight into two questions really:

1) For a HELOC or home equity loan, do lenders look only at current score/utilization/DTI only, or will they give some consideration to what those numbers would be after the loan? If I could get a second up to 90% CLTV I'd have both a solid score and DTI of 39-41% (depending on specifics). 

2) If getting approved at this point is even feasible, does it make any sense to take this opportunity to refi the first loan out of an FHA ARM and into a conventional fixed? In working the numbers, an 80/10/10 piggyback works pretty well, but not sure if it's worth even talking to lenders given my current credit situation. 

For or what it's worth, I fully expect folks to express that it's generally a bad idea to turn unsecured debt into secured debt, and totally understand. However, at this point my alternative is to VERY slowly chip away at this and pay an insane amount of non-deductible interest each month that I'd really like to get out of!

thanks to everyone for your thoughts!

[IOBA]

1.  How much equity do you think you have in your real estate?

2.  The max around here (could be different in your area) is 80% LTV on a heloc.  So if your property appraised at 100k, the max that COULD be loaned is 80k.  If your first mortgage is 70k, subtract that from teh 80k, and you have 10k left over as available credit.

3.  Is it worth it?  A HELOC loan would probably be for the term of 10 years.  

4.  Refinancing.  Not too many banks want to refi at 100%.  Most might do 90% and let you take cash back.  (If it appraised for 100k, then 90k would be available, less your current mortgage of 70k.  So 20k would be available.)

5.  If you refi with cash back, the lender will most likely want to directly pay off the existing debt.  You wouldn't get cash back, but some bills would be paid off or paid down.

6.  Have you talked to a lender yet?  

[Simmoja3]

Hey there,

sorry for for the late reply -- messed up my notifications somehow!

1. Current LTV is somewhere between 75-80%. 

3. Definitely worth it for me given my current situation - even a 5 year term would be very affordable and make life significantly easier. 

4. So I guess I'm debating between a 90% refi vs. a HELOC to 90% CLTV -- and by debating I mean trying to figure out which has a higher probability of approval given a relatively low score due to high util. All else being equal I'd prefer the HELOC or HE. 

5. Perfectly fine with the lender paying off existing debt directly; don't need the cash, just want those other accounts paid down. 

6. Nope! Hoping to get some suggestions / thoughts here first to figure out what my best approach would be, then look to find a lender. 

Thanks again!

[IOBA]

HHmmm....

If I was a lender, I would want to be in first position on a piece of real estate.  Thus, the first mortgage.  Being in second position, a HELOC, is way more risky.

In my recent experience, when getting a mortgage (never did a refi), there are a out of pocket fees that normally need ot be paid up front.

With a HELOC, the closing fees are usually waived.  The lender adds a prepayment penalty for 2-3 years.  Meaning, if you CLOSE out the HELOC (not pay it off but actually close the HELOC out) then you would have to repay the closing costs back.

Call a bank, a credit union, and a broker and ask them what products are available for your situation.  They may want to run a credit check before giving you options.  Make sure you explain what you want to do (ie - pay off bills) with the funds.  They may be more willing to fund the refi/HELOC if they were aware that some of the existing debt was to go away.

[kc0039]

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@Simmoja3 wrote:

Hey all,

I'm hoping to run a scenario by some experts (i.e. anyone who understands better then me, so probably everyone on this board 😛). 

I currently have a $540K FHA loan on a home valued somewhere between $680K-$700K, in year 3 of a 5/1 ARM at 2.875%. Due to a series of events over the last 2-3 years, I've got about $100K in other debt - combo of cc and personal loan. As a consequence I'm maxed out on the credit cards, so util has tanked my score (~650), and payments on all this are killing me (DTI works out to about 53%). 

As mentioned my mid-FICO is 654 right now; I'd imagine in a couple months when I at least get some of these cards out of "maxed out" status it'll bump up to the 660s-670s but probably not much higher any time soon. No serious baddies - 2x30 days back in 2011; two years ago (with no other changes except utilization and adding this personal loan) was at 730. 

Im trying to get some insight into two questions really:

1) For a HELOC or home equity loan, do lenders look only at current score/utilization/DTI only, or will they give some consideration to what those numbers would be after the loan? If I could get a second up to 90% CLTV I'd have both a solid score and DTI of 39-41% (depending on specifics). Lenders will look at current score/utilization/DTI. There are some that will do it and they'll have to pay off the debts that you have.

2) If getting approved at this point is even feasible, does it make any sense to take this opportunity to refi the first loan out of an FHA ARM and into a conventional fixed? In working the numbers, an 80/10/10 piggyback works pretty well, but not sure if it's worth even talking to lenders given my current credit situation. Sure. You can refinance into a conventional fixed, 80% 1st mortgage, 10% 2nd mortgage, 10% equity. This would be a rate and term refinance since you currently don't have a second, but it may turn into a cash out refinance which will raise your 2.875% to above 4.5% since it's going to be a jumbo loan.

For or what it's worth, I fully expect folks to express that it's generally a bad idea to turn unsecured debt into secured debt, and totally understand. However, at this point my alternative is to VERY slowly chip away at this and pay an insane amount of non-deductible interest each month that I'd really like to get out of!

thanks to everyone for your thoughts!

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