Home equity question...

[BabyTigger99]

How willing are banks to work with you when your credit score is decent, but not tremendous? DH and I have applied for a loan up to 100% of the equity in our home to pay off and get rid off our credit cards, and do some home improvements (add a 2nd bathroom, recarpet, new windows). I figured out for a $25000 loan over 10 years, with an interest rate of 8% would be around $300 a month. I know this is something that we can afford, since we pay more than that right now in bills. Is a bank ever willing to take a chance when your credit score is average?

 

[chrissyk]

I have no idea, but I wanted to say that you should stay away from "subprime" lenders at all costs!!! They would love to give a loan to someone with OK but not perfect credit, but they are such risky loans. There is a reason that they are called "loan to own" in a lot of circumstances. The rules of the loans put people at risk of losing their homes to these lenders!

If you can't get an equity loan from a regular lender, bank, or credit union, then you should work on upping your credit score until you can.

 

[ducklite]

It greatly depends on many factors. When you say your credit score is "average" what do you consider average?

Generally speaking, you'd need a minimum 620 to even be considered for a loan like you are looking for--and have no lates at all in the past year and no mortgage lates in the past two. Depending on teh lender, they might be looking for a score of at least 680. If you've got compensating factors, such as low debt to income ration, strong cash reserves, or verifiable and uncontrollable reasons for any late pay that aren't likely to recur, then you should be OK.

If your credit is "sloppy"--ie late pays because you didn't get around to it or you cat ran away (yes, I heard this one once--they were rejected), then you'll possibly be out of luck.

Another thing that could happen is an "offer"--they will give you a lower loan amount, or higher interest rate.

It's just going to depend on taht lender's underwriting criteria.

BTW--if your score is low (but 620 or higher) because you are over extended but have always paid on time, and this loan is going to lower your monthly payments to a more manageable DTI--you've got a good shot.

I want to add--if you can only get a lower loan amount--take it and pay off those credit cards, and set aside the difference between what you are paying now vs. the new monthly payment in a savings account. You'll be surprised how fast it will add up and you can pay cash for your home improvements.

Anne

 

[Blondy876]

We got behind in some bills and want to remodel so we looked into a home equity loan. Our credit is average and we had a tough time finding anyone willing to work with us. In the end we spoke to several different companies (most turning us down in the end) we finally decided to refinance our mortgage. Since we are planning to sell next year after we make the improvements we took out an interest only loan with a slightly higher interest rate. We got our loan through CountryWide and they have been wonderful. They were very respectful (many companies are rather nasty when they find out that you don't have the best credit), they gave us a lot of options and spent a lot of time helping us decide what was best for us. We did the whole process over the phone and when we closed they came to our house. We closed Friday and we will have the money in our account by Thursday. The whole process was pretty painless. I would recommend working with them if you are having a difficult time.

 

[ducklite]

We got behind in some bills and want to remodel so we looked into a home equity loan. Our credit is average and we had a tough time finding anyone willing to work with us. In the end we spoke to several different companies (most turning us down in the end) we finally decided to refinance our mortgage. Since we are planning to sell next year after we make the improvements we took out an interest only loan with a slightly higher interest rate. We got our loan through CountryWide and they have been wonderful. They were very respectful (many companies are rather nasty when they find out that you don't have the best credit), they gave us a lot of options and spent a lot of time helping us decide what was best for us. We did the whole process over the phone and when we closed they came to our house. We closed Friday and we will have the money in our account by Thursday. The whole process was pretty painless. I would recommend working with them if you are having a difficult time.

I think your situation is quite different for a couple reasons--first, you aren't planning on staying there, and second, you didn't refi to 100% of the value of your home.

My one suggestion for you is to keep your credit squeaky clean so that when you go to buy another home next year you'll be able to qualify for what you want at a reasonable rate.

In the OP's case, I think they are planning on staying there for the forseeable future, and will probably not be able to refi into a 1st at 100% for a rate at or lower than what they have now.

Anne

 

[The Mystery Machine]

The only 2 cents I have to say with regards to that is that people tend to continue charging and end up in the same place they were before. Then you end up in double trouble.

My parents almost lost there house this way.

I really would save it for an emergency.

 

[Blondy876]

I think your situation is quite different for a couple reasons--first, you aren't planning on staying there, and second, you didn't refi to 100% of the value of your home.

My one suggestion for you is to keep your credit squeaky clean so that when you go to buy another home next year you'll be able to qualify for what you want at a reasonable rate.

In the OP's case, I think they are planning on staying there for the forseeable future, and will probably not be able to refi into a 1st at 100% for a rate at or lower than what they have now.

Anne

Yes, I know my situation is different, but I wanted her to know that there are banks out there that will treat you with respect and will work with you. Just because you have hit a rough patch financially doesn't mean your a bad person.

 

[ducklite]

Yes, I know my situation is different, but I wanted her to know that there are banks out there that will treat you with respect and will work with you. Just because you have hit a rough patch financially doesn't mean your a bad person.

Generally speaking, I agree. I spent about eight years in the mortgage industry. I started as a processor, was promoted to underwriter, and then went into originations as a loan officer. I specialized in helping people who had a "rough patch" due to reasons outside their control.

I didn't do sub-prime lending, A- was as far down the rung as I went, my specialty was placing what should have been "B" credit by most lenders standards into "A" loans through documentation of circumstances to show it was highly unlikely to reoccur. As far as I know, of the few hundred loans in this category that I worked on during my tenure, only two went bad to the point of foreclosure--which is about equivelent to vanilla "A+" borrowers percentages.

Most of my clients were people who given a second chance did a great job of rebuilding their credit and assuring that they wouldn't run into a problem in the future through careful budgeting and savings.

I wouldn't touch people who were just sloppy for no reason other than lack of personal responsibility or ridiculous choices in priorities. (Bought a wide-screen instead of paying the credit card bill because the Superbowl was going to be on for example.)

Anne

 

[BabyTigger99]

The only 2 cents I have to say with regards to that is that people tend to continue charging and end up in the same place they were before. Then you end up in double trouble.

My parents almost lost there house this way.

I really would save it for an emergency.

We have already gotten rid of the cards, poof, through the shredder, so we are already not using them, and have not been in quite some time.

 

[Chicago526]

We have already gotten rid of the cards, poof, through the shredder, so we are already not using them, and have not been in quite some time.

Good for you! We just put ours in the file cabinet. We are only tempted to use them if they are in our wallets. Out of sight, out of mind!

I too am debating what to do. We put about half of our recent wedding on the CC's and the interest rate is just a killer. I'm trying to decide between sucking it up and just paying it down as fast as we can, or doing a home equity loan in the spring. I'm not a huge fan of home equity loans for the purpose of paying off CC's, but if it saves us a ton on interest, we'd have it paid back in no time. So I figure I'll pay down the CC's as much as possible over the winter, and see where we stand in the spring.

 

[The Mystery Machine]

We have already gotten rid of the cards, poof, through the shredder, so we are already not using them, and have not been in quite some time.

Good for you!!! Good Luck!

 

[pyrxtc]

We just apid everything off with a refinance adn man will it help. We have not used credit cards in forever, all the CC bills were from previous marriages and were just not going down fast enough. We didn't take much cash out figuring the money we save each month will soon pay for the home improvements we want to do. You should get a lower rate than 8% on a refinance too.

 

[BabyTigger99]

We just apid everything off with a refinance adn man will it help. We have not used credit cards in forever, all the CC bills were from previous marriages and were just not going down fast enough. We didn't take much cash out figuring the money we save each month will soon pay for the home improvements we want to do. You should get a lower rate than 8% on a refinance too.

We don't want to refinance. We are at 6% rate on our home right now. I have the call the bank back today. They need some more information.

 

[MagicalMom]

We have already gotten rid of the cards, poof, through the shredder, so we are already not using them, and have not been in quite some time.

I just wanted to tell you that if you just called & cancelled all of youn cards your FICO is going to take a big drop. When you are planning to apply for a loan it is best not to make any big changes such as closing credit cards.