Your Questions About Mortgage Refinancing With Bad Credit

William asks…

How difficult is it to switch the name on a mortgage title within family members?

My wife with her parents as co-buyers bought the house in which we currently live 12yrs ago. Though I have made all of the payments for the last 4 years(since marriage) and spent around 40K in remodeling etc. we have never taken steps to alter the mortgage agreement. We recently made an offer on our “dream house” (which was accepted). I have been approved for up to 100% financing on the new property if needed, but they require a significant figure in liquid accounts to extend that option. We just placed our house on the market and expect it to sell shortly but we are trying to investigate on the possibilities of getting a bridge loan on our current home to ensure everything goes well with the purchase of our new home.Any advice?

John answers:

It is going to depend on the laws in your state. Some states do not allow a change of title if the mortgage is in a different name. These are called “mortgage” states. CA is a “Deed of Trust” state and does not have this requirement so it is very easy to do at any title company no matter whose name in on the home loan. Check with a professional in your state.

A bridge loan may be a good idea. In many cases, you can pull equity out of your present home and use it to purchase another property. The payments on the bridge loan can be escrowed so that means you would have no out of pocket mortgage payments for 6 to 9 months. Sounds good, doesn’t it? However, after the 6 to 9 month period, the bridge loan is due in full so you might have to refinance the property again just to payoff the bridge loan if the house does not sell in time. I have seen this nightmare play out many times. I have past clients that are just drowning in debt thanks to two mortgage payments they have to pay to save thier credit rating. It is only a matter of time before they are in financial ruin.

Might be a little late in the game for you, but I tell most of my clients to find a real estate professional that is familiar with the buying trends in your area. If they are honest, they will let you know how long it is taking for similar properties to sell in your market. Be sure they can back it up with market data. Be careful, most RE Agents are just salespeople that are more interested in a commission that your financial well being. I have seen far to many people that assumed that thier home would sell quickly, only to find out it may take months and in some cases, years for thier property to sell. In many cases, The selling price is far less than what the real estate agent told them they can get for thier home initially. Ask yourself if the worst case scenario plays out (remember Murphy’s Law) can you afford to pay 2 or more mortgage payments and for how long. If the answer is yes, then you might want to go ahead and get the bridge loan. If the answer is no, then you might want to just sell your current home before you buy another.

Many real estate agents will tell you to put a “sale” contigency on the purchase contract of the new property. This would require that your present home be sold before you can close escrow on the new home. This is an option, but it also can make you a less desirable buyer. If the seller is in a hurry to sell, then they might not want to wait 6 months for you to sell your house.

Hope this helps.

8 yrs Mortgage and Finance experience

Paul asks…

Is it a good idea to get a vehicle 5 months before refianacing on my 2yr arm mortgage?

After I refinance my score will drop, and I want be able to get a vehicle until it goes back up which take about 1 year.

John answers:

Why would your score drop after refinancing your mortgage?

It is always a bad idea to add additional debt to your credit prior to getting a home mortgage. It adds to your front and back end ratios.

The ratios determine if you are able to pay a mortgage an still have money left for other debts that are not on your credit report such as utilities, food clothing and other misc items.

After the refinance and if you are able to afford the new vehicle this is the best time to acquire a vehicle.

I hope this has been of some use to you, good luck.


Maria asks…

How is the real-estate market affected by the recent turn of events?

Is this a good / bad time to buy a house? I know the prices are still dropping slowly, but how does the fall of Lehman Brothers, buyout of Merrill Lynch, direction in which AIG is headed affect the real estate market? Will it crash? We are still getting great deals on houses, but is there a possibility that suddenly the housing prices fall by 30% say if another large bank declares bankruptcy?

John answers:

The Fannie Mae and Freddie Mac trouble, the trouble with mutual funds, the trouble with 6 of the nation’s largest asset management firms, the trouble with the dollar and the fact that the cost of oil is going to transfer over $1.3 TRILLION dollars from US to Saudi nations all point to more trouble ahead. In addition, the mortgage fiasco has $1.72 trillion of adjustable mortgages that need to refinance or default before June, 2012. We have only reset $1.4 trillion since August, 2007, so we are not even half way there. Now, add that it takes the banks about 9 months to take title to a foreclosure and realize that there averages about 353,000 filed foreclosures per month for the past 6 months. Soon, banks will be dumping inventory of about 2,000,000 foreclosed properties that they will own on their books as “non-performing assets”.

These truncated little economic tidbits mean that we are only at the beginning. Real estate will continue it’s slide at least through the end of 2012. The 10,202 banks that existed in 2006 is now down to 7,000 and by 2010, will be about 5,000. By 2012, there will be 12 big banks that will control 85% of the banking business and that kind of oligopoly is never good. The Sherman Anti-Trust Act is being totally ignored by Congress to the demise of our individual freedoms.

This is a great time to sell and a great time not to own real estate. Rent something and bide your time for four more years. If you feel that you must buy real estate, buy a 6-unit apartment building because with the tightening of credit, and the numbers of newly created bad credit families, the rents will be going up as fast as the gas prices.

Helen asks…

How long should I pay on my car before trying to get it refinanced at better rate and lower payments?

My beacon score was really low when I purchased. I want to get mortgage on house and consolidate.

John answers:

It’s not so much about a magic length of time, as it is about the difference in your credit score and the difference in interest rates. You need to look very carefully into what you will save monthly versus the fees you pay to refinance. If your monthly savings over time don’t amount to more than you pay out for the refinancing, it’s a bad deal. In your particular siutation, you could still benefit if your payments are even a little lower. Banks will permit your to have higher monthly payments on your home loan because it stays nicely within their debt-to-income ratio. The catch-22 is that lenders may charge a higher interest rate to finance a used car versus a new car, and also a higher rate to finance a car older than a predetermined limit.

Donald asks…

How will those with not-so-great credit fare in today’s housing market?

Since foreclosures are abundant, is this a good time for someone who’s credit is slightly below average to get a good deal on their first home? Or are the lenders going to be tighter on interest rates because of our current fiasco?

John answers:

If you have a slightly below average score, the rest of your credit cards/auto loans/rent etc are all paid ontime AND you can provide current income documentation then you should have no problem getting qualified for a loan.

FHA still offers first time homebuyers 97.75 LTV financing which means you would only have to put down 2.25%, there are other lenders who can still offer 97% LTV purchase loans but their PMI rate could hurt depending on the loan. If you have the money and are planning on a more traditional down payment (20%) then I don’t think you will have any problems getting qualified for a new loan.

I’ve been a Mortgage Planner for 10 years and while the industry has been a mess over the past 12 – 16 months, I have provided loans for purchase and refinance for clients who had much worse credit that what you claim to have…. Go for it!

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