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Hi there,
I was encouraged to apply for a HELOC from my credit union because I have about $160,000 in equity, and I wanted to pull out $60,000 to pay off all of by circulating debt, including an existing 2nd Mortgage. The representitive told me all we needed was an average score of 570, which my wife and I have (569 and 591) so we both agreed for them to pull our credit, and within an hour, they caled and denied us.
I don't understand because if we got approved, it would free up nearly $4000 in cash flow a month, would improve our scores, and help tremendously. They told me we were denied because of past lates (been current on everything for 90 days now) and because of a collection of $1500 that I am on a payment plan for. They told me to try again in 6 months.
I don't want to keep trying and keep pulling if we are going to keep getting denied. What steps should be taken to assure an approval? I feel misguided as the rep made it sound like we would get approved, then a different person called us to tell us we aren't. So disheartening. Any help would be appreciated.
Unfortunately, there is no way you're going to qualify for a HELOC as most lenders will require a 700+ score. You will have to do a cash out refinance using a FHA, VA (if you are a Vet), or NonQM loan product. Once your scores increase to 620+ down the line, then you may refinance into a Conventional loan and get rid of the MMI (monthly mortgage insurance).
Best wishes to you.
There are lenders who will underwrite a HELOC in the mid 600's certainly (DCU is one such) but sub-600 seems a bit doubtful for now and that recent late is likely a no-fly zone for many too.
The FHA route isn't a bad idea, question though: how are you paying 4K a month of 60k debt when talking any rational APR? Bulk of that debt would be cleared in a year anyway just by the math, not sure it justifies paying a mortgage origination fee.