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Mortgage Refinance help


SMViera
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New account...old user. Hopefully I can get some good advice from the experts here. I am hoping to refinance my mortgage and have some questions about how to proceed.

 

Info:

 

Salary: 78K/year..solid employment in the medical field. Same employer for the past 8 years

Scores at the moment: Mid score is 690, clean report with no negatives on any. My scores have dropped due to high utilization of CC

DTI: high (75%)

 

I built and closed on my house in Nov 2018. 

Owe: $295,000

Value: $400,000 (give or take a few thousand) I put 20% down to avoid PMI

Current interest rate 5.25% 😕

 

By the end of this month, I will have paid off 32K in CC debt. I will have an additional 20K left on my reports but on cards with high CL's so my utilization will be low on the ones that are left. 

 

Other monthly obligations:

Car #1 $657/month

Car #2 #330/month

CC's: $400/month (remaining 20K that is left over..this is an estimation but should be pretty close)

 

So here is what I am hoping will happen (keep in mind...could be very different from reality as I really don't have a lot of knowledge about this) That's why I am here.

 

I am hoping to wait until June to start the refinance process once all the cards that I am paying down have a chance to update to zero balances. What are the chance my scores would boost up to the 740+ mark (wishful thinking??) I want to pull out some of the equity to pay the remainder of the CC's, would this be an option or advisable? I assume that if pulling money out leaves less than 20% equity in the house then I would have to start paying PMI...is that correct? 

 

Am I taking a risk waiting until June? Although to be honest I doubt I will be approved which my current DTI

What are the chances of me getting approved at all?

Is there anything else I should be considering?

 

I will say that I am working two jobs at the moment which is how I am paying down my cc debt. Its only a six week contract but pretty lucrative. Will that income factor in to my DTI

 

Thank you,

-S

 

 

 

 

 

 

 

 

 

 

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Is the 690 middle score a mortgage FICO?

 

Credit-wise, remember that at this moment the lending guidelines are tighter than they've been recently. 

 

Example:  https://www.cnbc.com/2020/04/11/jpmorgan-chase-to-raise-mortgage-borrowing-standards-as-economic-outlook-darkens.html 

 

I usually consider 43% as a max backend DTI guideline, but that's not necessarily an absolute limit.

 

$78,000/12 = 6,500

 

6,500 * 0.43 = $2,795 total allocated toward housing and debt, post-refi

 

657+330+400= $1,387 current debt obligations

 

$2,795 - 1,387 = $1,408 for P+I plus homeowners insurance (plus HOA, if any)

 

$295,000 for 30 years at (conservatively) 3.5% would yield a P+I payment of $1,325, leaving just $83 for insurance (and HOA).  With a slightly lower rate and a slightly-higher allowable backend ratio you're very close, if not already there.

 

The contract income is unlikely to count for anything unless it's reflected in your recent tax returns and you can show that it's likely to continue.

 

 

 

 

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1 hour ago, cv91915 said:

Is the 690 middle score a mortgage FICO?

 

Credit-wise, remember that at this moment the lending guidelines are tighter than they've been recently. 

 

Example:  https://www.cnbc.com/2020/04/11/jpmorgan-chase-to-raise-mortgage-borrowing-standards-as-economic-outlook-darkens.html 

 

I usually consider 43% as a max backend DTI guideline, but that's not necessarily an absolute limit.

 

$78,000/12 = 6,500

 

6,500 * 0.43 = $2,795 total allocated toward housing and debt, post-refi

 

657+330+400= $1,387 current debt obligations

 

$2,795 - 1,387 = $1,408 for P+I plus homeowners insurance (plus HOA, if any)

 

$295,000 for 30 years at (conservatively) 3.5% would yield a P+I payment of $1,325, leaving just $83 for insurance (and HOA).  With a slightly lower rate and a slightly-higher allowable backend ratio you're very close, if not already there.

 

The contract income is unlikely to count for anything unless it's reflected in your recent tax returns and you can show that it's likely to continue.

 

 

 

 

The 690 FICO score is middle mortgage Score. Just pulled my scores last night. Again I am hoping for a score bump once these tradelines report to zero. We shall see. 
 

Ideally I would like to borrow an additional $20,000 to pay off the remaining credit cards which would essentially eliminate that extra $400/month in credit card payments. Would that make a difference? The one credit card has an APR of 24.49% so I’d like it gone. 

I do get extra income from SS (survivors benefits for my daughter whose dad passed away a few years ago). Its over $2,000/month but that will be ending in a year and a half when she turns 18. I know they will not use that as income. 
 

 

Thank you for your replies. 

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1 hour ago, hegemony said:

what is the APR on the cars? $1,000 a month in car payments on 78k gross salary is a killer for DTI but also for you to build reserves and pay down credit cards. Can you sell one of the cars?

I know the car payments are killing me. If I could eliminate one I would.  One is mine and the other is my daughters car. She drives back and forth to school (both hs and college) APR is only 2.9% on hers. 
 

The APR on mine is higher. I think 6.75%. I looked into refinancing it but backed off due to ridiculous finance fees from the lender. 
 

My plan is to actually work toward paying off the car debt once my CC’s are gone. Moving toward a debt free life... minus my mortgage lol. 

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58 minutes ago, SMViera said:

The 690 FICO score is middle mortgage Score. Just pulled my scores last night. Again I am hoping for a score bump once these tradelines report to zero. We shall see. 
 

Ideally I would like to borrow an additional $20,000 to pay off the remaining credit cards which would essentially eliminate that extra $400/month in credit card payments. Would that make a difference? The one credit card has an APR of 24.49% so I’d like it gone. 

I do get extra income from SS (survivors benefits for my daughter whose dad passed away a few years ago). Its over $2,000/month but that will be ending in a year and a half when she turns 18. I know they will not use that as income. 
 

 

Thank you for your replies. 

Another $20k would add $90 to your mortgage payment and correspondingly impact your DTIBut don't discount the fact that you'll be paying the $20k at a lower rate but over the entire term of the loan.  This may be the more expensive way out over the long run.

 

Assuming a value of $400k, you'll still be at 80% LTV at a loan amount of $320k. 

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3 hours ago, SMViera said:

She’s only 17 and has no income. 

don't take this the wrong way, but does she really need a new car with a loan on it?

 

I think your plan to pay down the cards is good. Refi for your car might make sense too. good luck.

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5 hours ago, hegemony said:

don't take this the wrong way, but does she really need a new car with a loan on it?

 

I think your plan to pay down the cards is good. Refi for your car might make sense too. good luck.

Not taken the wrong way. You are right and I can justify it a million ways but It all boils down to the fact that she’s a good kid and hasn’t ever given me one ounce of trouble and I felt That it was one thing I could give her. There is only $12k left on the loan. 
 

do you think if I refinance my car loan that it would negatively impact my mortgage refinance? Just want to make sure I know what I am getting in to 

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13 hours ago, SMViera said:

Not taken the wrong way. You are right and I can justify it a million ways but It all boils down to the fact that she’s a good kid and hasn’t ever given me one ounce of trouble and I felt That it was one thing I could give her. There is only $12k left on the loan. 
 

do you think if I refinance my car loan that it would negatively impact my mortgage refinance? Just want to make sure I know what I am getting in to 

the main reason to refi the car is to save money on interest. You could extend the term too in order to lower the payment and help your DTI but that defeats the notion of getting out of payment hell.

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On 5/7/2020 at 7:51 AM, cv91915 said:

 

 

The contract income is unlikely to count for anything unless it's reflected in your recent tax returns and you can show that it's likely to continue.

 

 

^^^^^^^^

THIS!

 

A couple of years back I refinanced my home.  At the time, my income was all contract stuff, although my wife had a substantially smaller, but stable, income.  The banks did not like that.  I had to show contract income going back several years, the current year pay checks, and a copy of my contract to show that it extended into the future.   Even so, I qualified for substantially less mortgage than one would normally expect with that income.  Fortunately, my house is small enough not to stretch any limits.  

 

The trouble is, contracts can end with zero notice, and are not considered reliable.  In fact, at one point the next year my contract ended by ghosting. I got an email saying I should stop work on all projects immediately, and they would get me information later.  I didn't hear from them for almost two years, when they finally formally ended my contract.  No notice, no severance pay, no unemployment, no explanation, no nothing.,  

 

To the OP -- your contract income could be very good to pay off some of the debts that are killing your chances for a refi, such as some of the car loans.  If you can make enough money to pay off one of the car loans, it will help your refi chances enormously.  A short-term temporary contract will not help your refi calculations with the bank.  

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the main reason to refi the car is to save money on interest. You could extend the term too in order to lower the payment and help your DTI but that defeats the notion of getting out of payment hell.

Agreed. Payment hell is an understatement IMHO. At that income level it is definitely an albatross in combination with such a large mortgage balance.

Also having a kid almost in college, that is one thing I have tried to avoid. She took my old Honda once our other car was paid off and a solid path to pay for college was devised. Her next car (if needed at college-ugh) will be another $5k Honda which requires little other than regular oil changes.

Best of luck sorting it all out, OP.


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