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Refinance with cash out and low credit score

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cat98037
Member

Refinance with cash out and low credit score

I purchased my home 2 years ago. I owe $167, 000. I bought the home for $212,000 and it is now valued at least $250,000. My credit scores dropped after I bought this home because foolishly, I charged a lot on my CC. They are almost maxed out and at high interest rates. I know the only way to improve my scores are to pay down the revolving debt......but I can't. So, I was looking to refinance with a cash out and use the money to pay off all debt, except my home. A year later, I would refinance again, as I plan on improving my scores to excellent once the CC debt is paid. At that time, I would refi to a 15yr mortgage, which sets me up nice for retirement. I put an inquiry out on the internet and my phone keeps ringing and am getting emails of all these people who say they can help and  want to run my credit report. My score on CC is 580....I just ordered myFico report but don't see my scores yet. No collections or late....just all CC debt. Is it possible to refi with cash out with a score in the 500's with equity in my home?

Message 1 of 27
26 REPLIES 26
Gunnar419
Valued Contributor

Re: Refinance with cash out and low credit score

It's almost never a good idea to take equity out of a house to pay credit cards. You're using secured debt to pay unsecured debt, and the chances are that you'll turn around and run the credit cards right back up. It's what usually happens.

 

If you've maxed out your cards and don't have the means to pay them and your score is that low, I'm sorry, but your first need is to examine your spending habits and your second is to find ways to either earn more or economize more so that you can pay that credit card debt. I'm guessing you also have other baddies on your credit record besides maxed cards. You should deal with those, too, and avoid any "easy outs" that are just going to get you in more trouble. (Help is available in the rebuilding and personal finance forums.)

 

Taking money out of your house to pay ccs should be an absolute last resort, and with your scores you might have a hard time doing that, anyway. Besides, repeated refinancings can get very expensive! Then what if the worth of your house actually goes DOWN, not up? That's what happened to so many people in 2008 and a lot of them are still here at MyFico recovering from the consequences.

Message 2 of 27
Gunnar419
Valued Contributor

Re: Refinance with cash out and low credit score

And by the way, I hope you WON'T go with anybody from any pack of sharks that are circling you since you put out a public inquiry!!!! If you still think you must absolutely refinance, even though it's not a great idea, do a search on your own to find a reputable lender and be really careful about the offers of "help" you've been receiving!

Message 3 of 27
cat98037
Member

Re: Refinance with cash out and low credit score

Gunner, thank you for your reply and advice. I have wondered about the refi, as well. I was given that advice from someone I trust who is very good with finances. To your previous reply regarding my spending, please don't assume that I would charge them up again. I have a goal and am focused...plus you don't know why they were used. As far as "baddies" that you are sure or may think I have on my report, you would be incorrect. I do not have ANY. I've paid my bills on time and just purchased this home within the last two years. I have no baddies. I came here for advice yet I feel as if you have judged me and ...what's up with the words in CAPS and all the exclamation points? I've put myself out there, as many others on this forum have. While I appreciate yours and any of the advice I get here, I would not expect to feel ashamed or screamed at (all CAP words and multiple exclamation points) or have assumptions made about me, such as your previous comment about me having baddies. I will take what you said and look at all my options. I thank you for the positive advice.

Message 4 of 27
Anonymous
Not applicable

Re: Refinance with cash out and low credit score

I am not an expert on refinancing, however, I concur with Gunnar that you should not take money out of your home to pay off credit card debt. I, too, was in a situation roughly a year ago where I had incurred a lot of credit card debt. It was horrible. I hated every minute that I had that debt. But, like you, I was very intense about not wanting that rain cloud over my head anymore. So instead of doing a debt consolidation loan, or something similar, I just started paying stuff off. I lived off of very, very little for 10 long, hard months. But it was worth it. At the end of the day, you will make a decision to do what's best for yourself, however, I always like to remind myself that "You cannot borrow your way out of debt." Also, with a 580 score, you would likely not get very good rates on your refi and it would be a complete headache for you, at best. All of the people contacting you say that they can help you right now, but I wouldn't take that as the truth. I would re-evaluate the refi after you pay down some of your debt and see your scores go up. Best of luck to you!

Message 5 of 27
cat98037
Member

Re: Refinance with cash out and low credit score

Thank you, Isc1987. The more that I think about this, I think you and Gunnar (although he/she was very judgemental) are right. I think I will take a 2nd job...which I already work 7 12hr shifts in a row as a nurse....it's very hard work. But at the end of the day, I want less debt, an excellent score so that I can refi into a 15yr mortgage. I want "instant" debt relief but that will only make things worse, I believe. I did get my scores back from myFico and not as bad as I thought. Mid score FICO is 637 and mid score FICO mortgage is 600. And......I have no "baddies". lol  I will grin and bear it and pay the debt off. Thank you so much for your input.

Message 6 of 27
StartingOver10
Moderator Emerita

Re: Refinance with cash out and low credit score


@cat98037 wrote:

Thank you, Isc1987. The more that I think about this, I think you and Gunnar (although he/she was very judgemental) are right. I think I will take a 2nd job...which I already work 7 12hr shifts in a row as a nurse....it's very hard work. But at the end of the day, I want less debt, an excellent score so that I can refi into a 15yr mortgage. I want "instant" debt relief but that will only make things worse, I believe. I did get my scores back from myFico and not as bad as I thought. Mid score FICO is 637 and mid score FICO mortgage is 600. And......I have no "baddies". lol  I will grin and bear it and pay the debt off. Thank you so much for your input.


Gunnar meant no harm. Usually when we see that a poster has a FICO score in the 500s there is an assumption that something else is on the credit report besides high utility. But it can also indicate that the scores are FAKO rather than FICO. We don't know unless you tell us the source of the scores.  I see that in your original post the scores posted were not FICO scores but something else (not sure what cc means in the context of your original post).

 

The scores you have now - 637 mortgage score does qualify you for a FHA loan so if you do want to move the cr card debt to your home, that is probably an option for you. But I do agree with Gunnar and Isc1987 that you may want to handle the paydown on your cards through another means so that you don't load up your home with cc debt. This is a personal choice you have to make after you get the information you need to make this decision. With the type of schedule you have, it certainly is difficult to hold a second job. Working 7 12 hr shifs every week would be next to impossible to hold that second job IMO.

Message 7 of 27
cat98037
Member

Re: Refinance with cash out and low credit score

Thank you, StartingOver10.  FYI, I meant ck as a source for getting the initial score, (I typed cc, instead). I've worked all night. lol  I'm really going to see what I can do to pay down the debt, I think. A cash out is basically taking back a lot of the money that I put down on my home......and it was important for me to put 20% so that I didn't have mortgage insurance. I've bought three homes but never refinanced, so I don't know a lot about this. If I were to refi with cash, I wouldn't have 20% equity in my home, right? And then I would be stuck with PMI? Not sure how all that works. So glad this forum is here.

Message 8 of 27
Gunnar419
Valued Contributor

Re: Refinance with cash out and low credit score

cat98037, I apologize. I didn't mean to come across as judgmental, though I can see how I did.

 

I'm relieved you're not planning to take money out of your house to pay credit cards, though. Good decision.

 

And StartingOver, thank you for speaking up for me. 

 

BTW, OP, StartingOver is one of MyFico's most knowledgeable people when it comes to mortgages, along with DallasLoanGuy and ShanetheMortgageMan. You can never go wrong listening to them on that subject.

Message 9 of 27
cat98037
Member

Re: Refinance with cash out and low credit score

Thanks, Gunnar. Yes, this is a learning process with me so I appreciate all advice. Ugh.......hate the debt. Never again!!!!

Message 10 of 27
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