VA Refi Proposal

[Anonymous]

I have been in a VA 30-year fixed at high interest (7.25) for 16 years.

Current loan balance = $51k

Zillow estimate of home value = $125k

Mortgage lenders put my credit score @ 590 (myfico tells me 620).

My goals are to finance several big-ticket home improvement/repair projects, lower my mortgage apr, and pay off a very high interest personal loan ($6k).

A loan officer at a well-known mortgage lender tells me he can do the VA cash-out refi at a very good interest rate (considering my credit score) but the closing costs are several thousand dollars.

Then he floated this idea: He puts me in a VA cash-out at a higher interest rate with much lower closing costs for SIX MONTHS. Then, we do a 2nd refi with the VA Streamline at a much lower rate.

He tells me he has worked such deals on both ends at his (reputable) firm.

So I get my cash ($15k), pay the higher interest for 6 months, then refi again into the VA Streamline at much lower interest that I pay for the duration. (And the 'higher' interest of the first refi I'll be in for the 6 months is much lower than I pay now).

Seems to be a legal way to get the best of both: cash-out with a VA loan, then, do a quickie VA streamline 6 months later.

That sound like a good deal and a smart play?

[VALoanMaster]

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@Anonymous wrote:

I have been in a VA 30-year fixed at high interest (7.25) for 16 years.

Current loan balance = $51k

Zillow estimate of home value = $125k

@Anonymous lenders put my credit score @ 590 (myfico tells me 620).

My goals are to finance several big-ticket home improvement/repair projects, lower my mortgage apr, and pay off a very high interest personal loan ($6k).

A loan officer at a well-known mortgage lender tells me he can do the VA cash-out refi at a very good interest rate (considering my credit score) but the closing costs are several thousand dollars.

Then he floated this scheme: He puts me in a VA cash-out at a higher interest rate with much lower closing costs for SIX MONTHS. Then, we do a 2nd refi with the VA Streamline at a much lower rate.

He tells me he has worked such deals on both ends at his (reputable) firm.

So I get my cash ($15k), pay the higher interest for 6 months, then refi again into the VA Streamline at much lower interest that I pay for the duration. (And the 'higher' interest of the first refi I'll be in for the 6 months is much lower than I pay now).

Seems to be a legal way to get the best of both: cash-out with a VA loan, then, do a quickie VA streamline 6 months later.

That sound like a good deal and a smart play?

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Hi Dusibello,

This is not a good deal for you. Think about it. You're going to pay closing costs TWICE & there is no way of knowing if rates will still be low enough in 6 months to justify a refinance. If rates aren't low enough it won't matter to the lender because they already made their money off you & now your stuck in a higher rate. The other thing with this proposal is will you have enough equity to cover the 2nd set of closing costs & will you qualify under the benefit to borrower requirements.

Did the lender say how much of your equity you'll be able to pull on the cash-out refi?

[Anonymous]

Thanks for the info. That led me to more research that greatly increased my understanding of this byzantine process.

BTW, when you say 'how much of your equity you'll be able to pull on the cash-out refi' what do you mean exactly by 'pull'? The home will probably appraise in the $120k neighborhood, the original mortgage payoff would be $52k, and on the refi I'm taking $15k for the home improvements/repairs.

Many thanks again.

[VALoanMaster]

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@Anonymous wrote:

Thanks for the info. That led me to more research that greatly increased my understanding of this byzantine process.

BTW, when you say 'how much of your equity you'll be able to pull on the cash-out refi' what do you mean exactly by 'pull'? The home will probably appraise in the $120k neighborhood, the original mortgage payoff would be $52k, and on the refi I'm taking $15k for the home improvements/repairs.

Many thanks again.

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VA allows you to do a cash-out refinance up to 100% of your home's appraised value so my question about how much equity you're pulling out is tied to that. In this case you're only pulling out 15K so you're not pulling all of your available equity out.

Does that make sense?

[Anonymous]

Sure does and thanks again.

[VALoanMaster]

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@Anonymous wrote:

Sure does and thanks again.

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You're welcome. You're not going to move forward with that company, right?

[Anonymous]

Still doing the due diligence on this and other estimates.

As you mentioned, the cost of the back-to-back mortgages is a pitfall.

How would you feel about that plan if the lender were to pay the closing costs on both loans?

[medicgrrl]

I'm trying to figure out why he's proposing this. Is he thinking you'll get a lower rate in 6 months than his best rate now? Is this due to the lender not pulling your credit in 6 months? Personally, I wouldn't do it because his best rate now may be lower than what will be available in 6 months. That's a big risk to take right now. Is there any way you can improve your score now to obtain a better rate? What's the score he's looking at to get his best rate now?

[Anonymous]

Thanks medicgrrrl - it's useful to think back about just how I got to this point!

Reviewing the key factors:

1. Wretched FICO score (590)

2. In high-interest mortgage (7.25)

3. Nice home with good equity position: a $52k balance remaining on a $125k home

4. Several big-ticket home improvement/repair projects need to be done asap

5. Have $7k of high interest personal debt I need to pay down or off

6. Goals: Stop paying 7.25%, finance home repair projects with cheapest money possible, and get my f-king act  together financially

FICO score of course greatly limits the options.

The (very) few lenders willing to work with a 590 have made cash-out refi offers that should be reported to the authorities for criminal greed...

So the VA Streamline starts to look attractive due to its simplicity and its lower cost/better terms. Downside of course: no cash for much-needed home repairs and debt payoffs..

About this time I find my white knight lender. I tell him I'd been trying to get a 15-year VA cashout and failing that I would go with the VA Streamline, work up my FICO score, and postpone those home repairs until I could borrow less expensive money or save enough over time. (Which I really don't want to do as the home repairs really need doing now...)

So his initial 15-year VA cashout refi comes in with expensive closing costs and not such a great interest rate. That's when he ptiches the back-to-back VA loan scheme: He can do a VA cash-out and by going higher on the interest rate (5.x) he can pay closing costs. So I get my much-needed cash.

THEN, in 6 mos. we do the VA Streamline (he pays closing costs again) and score the lower interest. So I get the cash now, and get the lower interest later. And so far doing his back-to-back loans is a much better and less expensive deal by far than the few offers I'd been getting from the pirates out there..

Sheesh - sorry for the long story! I'll rest now, and thanks again for taking the time to listen!

[Anonymous]

P.s. My thinking on the interest rate unknowns in future are this: If in 6 mos. interest rates have spiked up, I'd still be in much better shape with his first refi which is a closing costs paid by lender deal and about 2.5 points lower than what I am paying now... Thanks again!