Cash out Refinance with a 625 mid mortgage score

[overth3top]

Hello everyone. I have about $40k in credit card debt that I am drowning in. I have no late payments for at least 10 years and an ER bill for $3000 that I refused to pay for 45 minutes for a second degree burn which was wrap it and a prescription for silver cream. Anyways that ER bill knocked my credit down alot. My reg fico scores are about 655 to 660. Mortgage ficos are 620 625 and 638 so the middle score would be 625.

Owned current house for 5 years with no lates. Value is around $165 to $170k. I owe114k. What I want to do is get a cash out refinance loan and take $30k from my equity and get a new loan for $145k still leaving $25k equity in the house. I would use $20k to pay off cards and a loan that will save me $1000 a month in payments. Keep the other $10k in bank for emergencies. My debt to income ratio is high ... around 47%.

To qualify for an FHA loan can they consider cash on hand after closing and or debt payments that will be made from getting the cash from the refinance. Don't really care about the refinace rates as I will save a tun by using the cash to pay off cards. Then get a low intrest loan to pay off the remainder 20k in cards. And no will not get into debt again... working my ass off in overtime to just pay bills now.

Appreciate any info or past experience.

[homeloanexpert]

As you might know, on a cash out refinance, FHA limits you to 85% LTV. Let's go with a estimated value of $170K, that would mean your base loan amount would be $144,500.00. Even if the closing costs, prepaids, and reserves could be paid by the lender, that would net you $30,500.00. If you factor in your costs, you would end up somewhere around $26K.

You will get a refund from your current lender for anything in your current impound or escrow account which will help offset some of costs of the refi. If that will work for you then I would pursue your refinance and of course once your credit become better and your home appraises another 5-10% higher you could do a simple no cash out refi into a Conventional Loan. How this helps you.

[overth3top]

Yea at this point I just need some breathing room on my monthly payments. Even if my net would be 26k paying $20,000 on debt would save me $1000 a month in payments. With that savings and another low intrest loan to pay remainder of debt I can breath and save for emergencies. 

One of the questions that was not answered yet is the debt to income ratio. Will they take into acount that after closing I would have cash that will put my back end dti from 46% to 32% and front end to around 18%. Will they deny the refinance since dti is currently 46% or consider after closing will have the $26k to lower debt ?

Thanks for any info. Looking to apply for a cash out refi with current mortgage owner Mr. Cooper in 2 to 3 weeks. Currently have a conventional loan with them at 4.75%. Even though the refi will cost me more will save 1k a month in payments from cards leaving about $500 in monthly card payments.

[NC_Mtg_Loaner]

Have you tried to obtain a HELOC?

You might be limited to the "equity out" portion or credit limit, but your local neighborhood credit union might have an option for you here.  Of course your credit score COULD be an issue which might really just require you to "keep treading water" a couple months "as is" to boost your score enough to make it work.

I know it might be tougher, but even if you work to pay the ER something now (will they accept $100 per month?) after 4 regular monthly scheduled payments (which you can have proof to present to a lender in about 3 months) they can no longer report that collection as a derogatory account which should help in making it work.

Lenders will exclude liabilities from your DTI calculation as long as they are paid off at closing of your new loan.

You might also want to research a conventional cash out refi at 80% if you can "survive" without the extra 5% cash back.

good luck and hang in there, the light is at the end of the tunnel.

[overth3top]

Yea I need a 640 mortgage score to get a home equity loan. The orginal medical bill was $5000 for being there 45 minutes including wait time to clean and wrap a burn 3 inches on my arm and a prescription for silver burn cream with no follow up. Insurance paid $2k and gave me a balance of 3K. Was thinking about making an offer to the collection agency but I am just getting my ahead above water as several card companies minimum payments have went way up. Yes without the ER on credit report my scores would jump way up.

Ok so I can make a contract to pay off $20k at closing and have the mortgage company send the checks to get approval with current high dti ?

That would be great. With my scores and dti do not see how I could get a conventional cash out. If all this works out credit will jump back quick and in a few years will refi with a 750+ score. Just need to make it until this cash out works....

Thanks for all the info... 

[overth3top]

Found this information online... If it's true (it's on the internet it must be   it would mean that if I pay down cards on the day of closing with the cash out refi money my dti would drop and I would qualify. Anyone have a different interpretation of the following ?

You can pay off credit cards to qualify

Nearly two-thirds of loan applications are approved by today’s mortgage lenders. Going forward, though, that number is expected to increase. This is because lenders are changing the way they calculate an applicant’s debt.

The change will benefit applicants who use credit cards monthly, and both home buyers and homeowners looking to refinance will benefit.

Under the new rules, which apply to conforming mortgages, credit card debt is treated differently.

For credit cards which are paid in full at closing, lenders are no longer required to “close” the credit card in order to exclude it from the applicant’s debt-to-income (DTI) calculation.

A paid-in-full credit card no longer counts against an applicant’s DTI.

There are three groups of consumers this change will benefit.

Group 1: Credit card holders who pay off their balance each month

Previously, lenders used whatever mid-statement balance a credit card reported to the credit bureaus — even if that balance would be paid off at closing.

The lender would “hit” the borrower with the payment showing on the credit report.

If no minimum payment was given, the lender would multiply the reported balance by 0.05 to determine the card’s “monthly obligation.”

A $10,000 American Express balance would add $500 to a consumer’s obligations, for example.

But what if the loan applicant pays off that balance prior to or at closing?

Under former rules, the lender would still apply $500 toward the borrower’s monthly debts.

Now, under current rules, the applicant is hit with a $0 monthly payment when that American Express card’s balance is taken to zero.

[overth3top]

And the final result in the end is in Texas they do not allow FHA cash out loans which gives me two options either sell the house to pay off debt and rent for a year or try to get a smaller home equity loan that may be hard to qualify for even though they can take the house if you dont pay the loan.... this is crazy