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Planning ahead to refi 8.5% blended 80/20 in May - Need advice

Currently have a 8.5% blended 80/20 for 250k with 245k balance serviced by Citi. Zillow values house right at $250k now. In May, the prepays expire and we want to refi ASAP to lower mo pmt. I have about 670 median score and have a BK and foreclosure 7 years ago, but have a couple negative items about to come off my report (write-offs from the BK). Because of high LTV, I was told I should look at an FHA refi. Can I even get an FHA with a BK and Foreclosure on my report?

I should get about 3-4K in tax refund, and get an extra paycheck in May that will give me another 2K. If I use my tax return for it, I can finish paying all my Credit Cards down to less than 50% balance hopefully in time to get a snaphot at that balance to raise my credit scores, hopefully above 700 with the negatives coming off too. However, that will leave me with very little to pay down the mortgag to the 96.5% needed for a FHA if they will only appraise at $250k (I know it's possible they won't even appraise at that and I might be out of luck) or to pay closing costs if they can't be rolled into the loan.

I really want to pay down my CCs, especially since some have raised interest rates even though I have never missed a payment, but I don't want to jeopardize refinancing since it should help my monthly payment quite a bit, and I won't get any extra funds for another 4-5 months after this may. Should I pay down the debt to increase scores, or should I hang into the cash and try to work the refi first with whatever score I have then? Should I be looking at something other than an FHA?

Thanks in advance for any advice you folks have!

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October 01 2009 - Minnetonka
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Is your current loan owned by Fannie or Freddie? Where are you located? BK has to 24 months from discharged date for FHA.

Paying off your debt will help your scores as long as the account is revolving. If you pay the account to $0 balance, then the bureaus look at it as a closed account and no revolving history. Revolving payment on time/history = good scores.

Consider transferring high rate cards to 0% balance cards. Usually new offers will allow you to transfer accounts to a 0% up to 12 months, at least will save you some interest and lower your payment.

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October 01 2009
If you can't refinance you can always look into a loan modification, just an fyi..
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October 01 2009
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Thanks for the replies, all.

Ken: I assume you are thinking about a "Home Affordable Refinance", part of the Making Home Affrordable program? According to Fannie/Freddie links on that site it is not owned by them. I have not contacted CitiMortgage yet to verify but it does not look like it, and I would be surprised since this was a 100% LTV 80/20 with a BK discharge and foreclosure 3.5 yrs previous at the time.

Payment Choice: Thanks for the advice, I have already moved some of the worst interest rate CCs to a personal loan, and moved MOST of my balances to low interest fixed rate offers on other cards. I need to sit down and calculate my Debt/Income but I think it is gonna be real tight. I guess I should let that be my judge of what to payoff. I will be contacting my local LO pretty soon and/or putting out a request on Zillow.  

Christine: Thanks for the heads-up! That was kind of my plan if the property will not appraise high enough at the time. Maybe you can answer a question nobody else has been able to. If you do a loan mod without being behind on payments will it negatively affect or even appear on your credit report?

Everyone: Last loan I did, all closing costs were rolled into the loan. Approx. what are typical closing costs/percentages for FHA loan?

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October 02 2009

You have a little more room on that refinance LTV with FHA.  The max loan to value on this loan would be 97.75%, not 96.5%.  Your bk and foreclosure are old news and shouldn't affect your loan anymore.  As of right now, most investors are taking credit scores of 620 or higher on FHA so your 670 should be good. 

Increasing your credit score will increase your chances of getting an automated approval for your FHA loan which would be nice because otherwise, it would be a manual underwrite and loans tend to have a better time in underwriting if they have automated approvals as opposed to being manually underwritten. 

Make sure that the original purpose of your second mortgage won't designate your loan as a cash out loan because that would be disasterous after all the planning you're putting into this.

Lastly, if you're going to pay down debt to increase your score, get a CreditExpert report so you can make sure you're getting the highest fico dividend for monies allocated.  You can buy one online but your loan officer can get you one too.

I hope this helps.

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October 21 2009
From what you stated it sounds like you are on the right track. For more help about credit score check out myfico.com to see what else could be done. For FHA it depends on chapter 7 or 13.....13 you can qualify for a loan right after discharge and chapter 7 takes 2 years. Talk more about this info at my website.
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November 12 2009
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"Make sure that the original purpose of your second mortgage won't designate your loan as a cash out loan because that would be disasterous after all the planning you're putting into this."

How would I find this out? Would it state this in my original loan docs? It was an 80/20 with one closing, and I make my blended payment to the same servicer, CitiMortgage. I believe we did get a minimal amount of cash at closing, since we did a rent-to-own prior to buying and got credit for some of our payments and had closing costs rolled into the loan so I am concerned this might be the case.
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November 13 2009
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Are you kidding? are you talking about mortgage?

It is upsetting, but really there is very little help with low credits. Go make personal connection with some local credit union and then ask them to refi you.

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November 13 2009
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Lifebeyondearth, if you actually read this thread, your posts makes no sens and is frankly not helpful. You offered nothing to the discussion.

I am talking about mortgage, on a mortgage advice forum even. Imaging that? And even getting into specifics on program details with folks who might actually know something you don't. Wow, we could all actually learn something here. How about that?

My credit score was good enough to get a mortgage with high interest rate 3 1/2 yrs after discharge and it would be good enough to get an FHA one now. There is plenty of help with "low credits" you build your score up, just like I did after I filed my BK.

I have paid every cent of my high interest sub-prime mortgage, unlike many, and all I am trying to do is try my best to prepare and refinance into a market-rate product. Seems like this is the hardest thing to do right now, for anyone who actually paid their bills but isn't eligible for a handout from uncle sam.

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November 16 2009
Gnasses,

Sorry it's taken me so long to get back to this forum and answer your question and sorry I was vague about the matter of your second mortgage.  If the amount of cash back to you was nominal (2% of the total loan amount or less) then you should be time.  Further, I didn't know you'd been in this nasty loan for 3.5 years.  That should make it a moot point.

I think you're ready on this one Gnasses.  If you're still nervous, I'd recommend finding a lender that you're confident with and have them pre-approve you for the loan now.  By this I mean tighten the loan application up and get your automated approval from Fannie Mae or Freddie Mac's electronic underwriting engines.  You can't control the expiration of your pre-payment penalty or what exactly your house will appraise for come time to do this but you can control the rest.  This would be the best way to ensure that you haven't missed anthing in your preparations.  Further, you'd be doing it early enough to make the necessary changes for your eventual refinance.

Good luck and sorry for the delay in getting back to your post.
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November 23 2009

If you go towards loan modification please beware of rip offs and loan modifications can be done one of two ways.

1. Call the lender your self, but if lender says no repeat call for the next month until lender says yes.

2. Find a NON profit HUD approved counselor to help you through the process and you should not have to pay anything upfront for this help.

Hope this helps :)

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November 23 2009
You have really recieved many helpful tips already.

Based upon your scenario and advanced planning Fha refinance may work if:
1. 20% second was used to complete purchase of property
2. Values with similar types of properties increase in value (continue to watch for sales of simliar properties in your immediate radius -1 mlie or so.
3. discharge of bk must be more than 2 years
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November 23 2009
 
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