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mrokuk

Cash Out Refi shows NOD even though it's off CR

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Hi, I'm looking for a cash out refi and the underwriter has come back with a strict questions that I'd love help to answer- our credit is 780 and everything has been smooth sailing until now.

 

1. Provide explanation for purpose of cash out refi

I originally told the mortgage broker that this was for home improvement, which is halfway true- we also want the cash-out refi cash to purchase outright (no mortgage) a vacation home. Any advice on how to explain this in a signed/dated letter for the underwriter? Just say "for home improvement" and be done with it? or indicate that it's for both? Our debt to income ratio shouldn't be affected by buying the vacation house outright. Complicating this is that we had a pre-qual letter drawn up in June from the same mortgage broker, and the underwriter is ALSO asking us to explain all CR inquiries from the past 90 days (I believe that's the only one)- this is back when we were considering getting a mortgage for a second house instead of just buying it with cash-out refi funds.

 

2. Notice of Default and subsequent cancel from 2011

We had a default on our primary house mortgage in 2011 and the next month paid it off- this is off my credit report, but I guess the underwriter found it on the public records search? Any advice on how to explain this to the underwriter? We had autopay but moved banks and didn't catch up until after 90 days. So frustrating that this is from over 7 years ago! Also we got a refi from the same mortgage broker (non-cash out) back in December, so it's odd that this public record is coming up now instead of last year.

 

Thanks so much creditboarders!

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Be truthful and as brief as possible.

 

Dear Underwriter, the purpose of the cash-out refi is home improvement.  Love, mrokuk

 

Dear Underwriter, the inquiry from XXXXX was for mortgage shopping which we did not complete at that time.  Love, mrokuk

 

Ask your loan officer how to word the letter about the default.

 

 

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We are using the cash-out refi money to pay cash for a vacation house AND cover some home improvement costs on our primary residence. Should I still only say home improvement, or mention the home purchase as well? Is there a chance they would request documentation and see that the remodel costs are lower than the amount we're taking out?

 

I want to be truthful but worry that they'll freak out about the real estate purchase.

Edited by mrokuk

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1 hour ago, mrokuk said:

We are using the cash-out refi money to pay cash for a vacation house AND cover some home improvement costs on our primary residence. Should I still only say home improvement, or mention the home purchase as well? Is there a chance they would request documentation and see that the remodel costs are lower than the amount we're taking out?

 

I want to be truthful but worry that they'll freak out about the real estate purchase.

I've only ever done one cash-out refinance and I didn't have to provide a reason.  

 

If you have concerns about the content of the letter I would discuss the matter with your loan officer before writing it up.  Your LO should know what the underwriters are looking for, and s/he is receiving compensation for being your advocate in this process.

 

In the interim, there are mortgage professionals who frequent this forum who can give you more specific advice than I can.  

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Thanks @cv91915 - Really appreciate your feedback and sample letters. I worry that the Loan Officer is too green to handle these issues (they had never heard of reamortization). Will talk to them and get some help even if it kills us!

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I wasn't able to get Imgur to cooperate yesterday, but it's sorted itself out so I can post this image.

 

When we bought our primary home in 2014 the company that did the mortgage provided pre-printed response letters for recent inquiries.  This is how simply the matter was handled:

 

ygrAlc9.png

Sorry to hear you have such an inexperienced LO.  Next time around, that's a red flag.  

 

Best wishes as you wrap this up.

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Great wording, thanks @cv91915 ! The LO was baffled since all of the inquiries were from his own company, 3 months ago.  We ended up being completely honest about the house purchase AND home improvements at the LO's advice "Why should they care what you want the money for as long as there's no new debt acocunt?" So we'll see how it goes!

 

The LO we had last year from the same company was great, but then he wouldn't return our calls so we went with a new random one from the same company. If they can pull off our timeline and not mess up our second home purchase, all will be forgiven!

 

Thanks again!

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1 hour ago, mrokuk said:

Great wording, thanks @cv91915 ! The LO was baffled since all of the inquiries were from his own company, 3 months ago.  We ended up being completely honest about the house purchase AND home improvements at the LO's advice "Why should they care what you want the money for as long as there's no new debt acocunt?" So we'll see how it goes!

The why is most likely something that can be attributed to wanting to know whether the funds are attached to an encumbered asset in the event that they have to come after you in the courts to collect if you were to default.  Funds used on the present asset are easier to attach given that it is a single asset.  However, when the funds go to ANOTHER residence, things can get complicated especially if there was a manner of claiming the OTHER property as a homestead even though you CURRENTLY claim it as vacation-only. 

 

Smart financial institutions are ALWAYS going to be looking for the big picture down the road...the competent ones are EXPECTED to know multiple levels of thinking on a transaction.

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interesting @centex - do you think we should just say construction then? Our primary residence is appraised at $1.6M and the total new loan is $600k ($250k cash out)

Edited by mrokuk
add M

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1 hour ago, mrokuk said:

interesting @centex - do you think we should just say construction then? Our primary residence is appraised at $1.6M and the total new loan is $600k ($250k cash out)

I'm not offering any guidance in that regard because I don't know what you are or are not having to attest to.  Affirmations on a loan are things that can come back to bite people squarely in the hind quarters in litigation even if the account never went into financial default.  Lies or omissions can be a basis for default declarations. 

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22 minutes ago, centex said:

I'm not offering any guidance in that regard because I don't know what you are or are not having to attest to.  Affirmations on a loan are things that can come back to bite people squarely in the hind quarters in litigation even if the account never went into financial default.  Lies or omissions can be a basis for default declarations. 

Thanks for yr post,  my instinct is to just be honest about everything, but I'm worried that they won't approve if it's partially to purchase another house. We have plenty of cash on hand and good credit so perhaps I'm just overly worried since we are relying on this cash-out refi to finish the purchase and the timing is tight.

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On 8/28/2018 at 2:16 PM, mrokuk said:

We are using the cash-out refi money to pay cash for a vacation house AND cover some home improvement costs on our primary residence. Should I still only say home improvement, or mention the home purchase as well? Is there a chance they would request documentation and see that the remodel costs are lower than the amount we're taking out?

 

I want to be truthful but worry that they'll freak out about the real estate purchase.

Didn’t you change your mind and plan on investing that money instead of buying a new home. Remember buying a new home (even though a cash deal) will still cost you money monthly with taxes and home insurance.  😉

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