Profile picture for RubyThomas

Advice needed - Cash out refi or HELOC

My wife and I short sold our house in November 2012.  We moved into a house that was purchased in August 2013 by my mother-in-law and my brother who is a "non-occupant co-owner".  The mortgage is paid from our checking account. 

In February 2014, the Title of the house was Quit Claimed from my brother to my wife and me.  So currently, the mortgage is owned by my mother-in-law and brother yet the Title is in my name, my wife's name and my mother-in-law's name.

My FICO score is 670
My wife's FICO score is 660
Debt to Income Ratio is 30%
Credit card balance is $70,000
Credit utilization is 60%
Purchase price of house in 2012 was $220,000
Mortgage balance is $157,000
Value of house according to Zillow is $434,000

I have worked for the same company for 17 years and make approximately $90,000 per year not including bonus.  I also have a seasonal job as a tax preparer and earn about $4,500 per year in that position.  My wife works part time and makes about $20,000 per year. 

Between now and November we will continue to aggressively pay down our debts so our numbers should improve.

Would we qualify for a cash out refi or HELOC come November?

  • June 28 - Johnsburg
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Answers (6)

Profile picture for RubyThomas
Thanks Tyson,

So in my situation you are saying that a down payment of some sort is required?  With approximately $250,000 in equity could I use part of the equity for a down payment if one is required?

Also, what impact does my short sale have on either a refi or HELOC?  Do I need to wait until 2 years have passed since that event? 
  • June 28
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I have a relationship with a credit union in Arizona that do a HELOC with a 660 fico, however, I agree with other postings that you should refinance the brother off the loan. I have listed below our credit score requirements.

FHA, VA, & USDA
We finance down to a 550 credit score and you will be limited to FHA Loan Limits in the particular county of interest. The minimum down is 3.5% on FHA with a credit score of 580 or better and 10% down with a 579 down to a 550. USDA/VA are 100% loans.

CONVENTIONAL
We finance down to a 620 credit score and the minimum down is 5%.

If you need further information please reach out to me here on Zillow or post on this thread so others will learn from your experience.
  • June 28
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I don't think you'll get a HELOC with credit scores that are average, at best. You're going to need them to climb about 70 points.

You probably would be automatically disqualified, for any HELOC, due to the two year old short sale.

  • June 28
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Profile picture for wetdawgs
While it may not be required technically, it seems as if the right thing to do would be to refinance to get your brother's name off the mortgage.  Even though you have been paying the mortgage, his name on the mortgage will appear in his credit reports.

There also may be some tax implications for your brother with your brother quit claiming his portion of the property to you.   Please have him see his tax accountant.   (The brotherly thing to do would for you to pay those taxes for him).

  • June 28
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Profile picture for RubyThomas
Thanks Robert, but do you see any issues with us being approved for a HELOC given our current debt, FICO scores a short sale in our history and the fact that we are not on the mortgage but are listed on the Deed?
  • June 28
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    Well to start with your Debt ratio will change once you add in the addition amount you will be cashing out. With that said rates from today until November may be different. Now to answer your question it may all depend on what you want to do. HELOC's are more flexible because you can use them like a credit card and are mostly based off the Prime rate (which in the past few years has been steady). Additionally the HELOC goes in a second lien position behind your current mortgage. With a Cash out you'll be re-locking yourself into an other 30 year loan (unless you choose a different amort.) and rate will get a hit for CASH OUT. The benefit could be your rate is higher then the current market rates in which case would be better to Cash out. My overall suggestion is go with HELOC when possible.

Thank you
Robert Padron
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  • June 28
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