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Cash out refi to pay off debt

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Anonymous
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Cash out refi to pay off debt

Hello! 

 

Just had some questions about the possability to refi my mortgage to pay off a massive amount of debt. First, I know the advice will be that putting the debt into my house is a terrible idea, I understand 100%. I am willing to do it though and don't need any advice on why it's bad. 

Long story short, I've made some terrible decisions over the last several years and my credit score has tanked. The burden of my debt is really bad and I would much rather pay everything off asap and be out of debt forever, except my mortgage which I have no problem starting over again with the new loan. 

 

I originally purchased my home for 185k, currently owe about 160k, and the estimates I see online for the home are anywhere from 200k to 220k which gives me around 40k - 60k equity. 

 

My credit is bad, currently in the low 500's. Is there any way to refinance with such a terrible credit score or am I stuck for several years until I can build it back up into the 650+ range?

 

I know I screwed up, and I know the proper way to handle this is to pay off the debt without the mortgage. Just looking for alternatives / recommendations that might be available. 

 

Thank you!

Message 1 of 4
3 REPLIES 3
Jnbmom
Credit Mentor

Re: Cash out refi to pay off debt

Well since you know how terrible that is I will skip that part.

 

Now how much debt do you have totally?  You started your scores in the 500s, is that low end or high end, and why are they so low? Is it just utilization, or do you have collections, charge offs or judgements?

I highly doubt you would be able to refinance with those scores and if anyone would do that, your rate would not be very good..

 

Hopefully others will chime in.

EXP 780 EQ 791TU 795
Message 2 of 4
MauiMan85297
Established Contributor

Re: Cash out refi to pay off debt

With scores in the low 500's you would be hard pressed to find a lender who could get you approved and fund your loan.  I say this because some companies pay their LO's to start a loan but don't care if it finishes.  VA loans have no credit score minimum but most lenders have a 580 minimum to qualify, (Yes, others have overlays to go as low as 500) but that comes with full documentation and stringent UW guidelines.

 

Try paying off some of that debt to raise the score above 580 as the higher the score the less hoops you'll have to jump through, not to mention with all the debt you may also have a DTI problem as well depending on income.



Message 3 of 4
homeloanexpert
Established Contributor

Re: Cash out refi to pay off debt

We can do down to 500 for FHA, VA, and Portfolio. Regarding your bad credit, do you have a multiple lates on your open accounts in the past 12 months? Generally speaking, if your mortgage is current and reporting as "Paid as Agreed", I can usually make it happen. FHA goes to 85% cash out so you can payoff debt at closing. Let me know if you have any further questions.

Branch Manager - Specializing in FHA, VA, USDA, Conventional, Jumbo, Portfolio and Non-QM Loan Products.
Message 4 of 4
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