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What to do about refinance of pre crash 80/20 IO loans with no equity?

My wife and I purchased our home in 2005 for $305,000.  Wells Fargo convinced us that a 80/20 IO loan (not Fannie/Freddie backed) was the way to go and not use my wife's VA eligibility.    Since we were first time buyers and pretty naive and the time, it seemed like a legit plan.

In 2007 WF then called us as home values had been skyrocketing up and said they could increase the available funds to our HELOC, which we stupidly took as a opportunity to make some improvements to the house.  Then disaster struck, my wife lost her job for over a year and shortly after the Housing market crumbled.  Through it all we never missed any payments and have climbed out of all our credit card debt incurred when she was unemployed.  However, during this time we paid nothing but interest against the house and currently owe $325,000 and our loans are not far out from exploding.

We are looking for options to get both loans salvaged into fair rates that we can afford.  We love our home and want to stay.  Currently houses in our development that are similar size/style have sold for $320-330,000 so I wager it is now no longer underwater, we just have no equity.  My wife is eligible for a VA refinance, but because of the 80/20 loans, I believe we need to get 10% equity to go that route.   I am hoping that maybe with some appreciation in the next few months as summer is around the corner and historically home prices inflate best in July/August in King County and by then I should have close to $15k saved to put against the home as needed.  But it may not be enough.  I also have $50k available to me from my 401k as a loan to myself, but I prefer to not use that as it is my retirement.   My credit is solid, 817 last I checked.
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March 20 - Kent
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Answers (13)

Definitely apply for the VA Cash-Out to 100%. There is slight pricing differences as there is with any loan with a higher loan to value ratio. Schedule the funding of the VA loan to occur 12 months from the last withdraw or credit line increase on the 2nd mortgage. 

The VA is very flexible and exists to benefit those who serve our country. If need be, you can apply for a manual underwrite and see what the VA says. Values continue to appreciate steadily, so every month that passes your equity position improves and you should be able to put this loan in your past. Let me know if I can assist you further. Good luck!
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May 04
@ Stogners - thanks for the follow up  comment and data ...please  contact me via  my profile and I am happy to make some suggestions and  probably ask you a few more questions ...thanks again and all the best
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March 27
Having read through your loan, it sounds like a VA loan may be feasible.  Feel free to get in touch if you would like me to further explore.  I'm with a community bank based out of Washington, and my office is in Bellingham.

Thank you,
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March 27
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Thanks, Dave (and sorry for my late response).  

1) Colorado
2) Possible, but would be at least 6 months out (or a new appraisal might squeak us in there)
3) Yes, we would qualify
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March 26
when you say " interest rate penalty "  -  what  is it you mean speifically ?
VA loans require payign VA funding fees ( which conventional loans  dont ) ...you can finance this into new loan

I would be able to provide details  if you like .....forward me some details  via email and I can get  somes  examples and  ideas to you
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March 21
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Dave,

No additional money has been used from the HELOC in at least a couple years.  It is actually the original HELOC that I got with my home, when Wells Fargo increased the limit of it, I am pretty sure my loan number stayed the same.  If that is not the case, then it is at least 6+ years old anyway.

Is there a interest rate penalty with the 100% VA program?  I want to get my loans taken care of, but I am prepared to eat dirt for several months if I need to save some additional money to get me locked into the best loan possible so I do not need to refinance again later.
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March 21

 

the 100% VA program you mention is possible as long as the heloc is over 12 months old and no more than 2K has been pulled from it in past year

can we help with some  refined ideas  for you to review ?

thanks


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March 21
jhatfie....u want to explore all of your options...you do have OPTIONS...especially given the assets that you have.....get with a professional asap and they can surely go over all of them for you.....im here to guide you if needed too...
all the best

randy
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March 21
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To answer Dave, neither the primary or secondary meet the HARP requirements.  

Things do not feel as imposing as they did a year ago, but I feel like I cannot make any other financial plans until I get these off my back.

Even though we have not been making progress against the home, our other financials are at least in pretty decent shape.  We have $0 in credit card debt.  Two car loans, but I have paid extra into both so I could literally not make a payment for 6 months on both and still not be behind.  $8000 in savings that we were intending to use towards getting our mortgage situation improved, but I have a bonus coming and should be putting additional in every two weeks so we hopefully will have close to $15k by July.

My wife was in the Army, so she should be eligible for a VA loan, however she is not on VA disability, so that removes some flexibility.   I was previously told that the 100% cash out option did not apply to us because of or 80/20 loan and the fact that the HELOC was increased compared to the original amount.  It would be great if it is an option.

 
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March 20
@stogners -

1)what state are you in
2) do you think you can get to a point  where you have  5% equity ?
3) any idea if you would qualify OK
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March 20
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Wow, I will be avidly watching this post, as we are in almost the EXACT same situation.  80/20 IO for $280K, taken out in 2006, not Fannie/Freddy-backed.  Ours is only IO on the 80% portion, but we still have only accumulated about $5K worth of "equity" in the last 8 years.  Also, no VA eligibility.  Balloon in 2 years, nobody will refi us.  I (wife) was unemployed in 2009/2010, but we continued to make payments by the skin of our teeth.  Income has vastly improved, however, property values have not and nobody will touch us with a ten-foot pole.  We really want to stay in the house, but this is getting ridiculous.  I literally had a conversation with Quicken Loans yesterday evening, and her advice was, "hang in there."
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March 20
There is a lender out there that will do a 100% VA cash out loan.  Give me a call I will send you over the guidelines.  Or you can just email me directly.  
[Spam removed by Zillow moderator, see our Good Neighbor Policy]
I have a managers meeting in Bellevue so I will be away from the office the rest of the day. 

is proud to offer 100% Cash-Out on our VA programs as a way to give back to all our veterans and their families. Unlike other lenders, we believe in supporting these families by not restricting the cash-out benefits of the VA program
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March 20
thanks for the post
do you know if the 1st mortgage is eligible for the HARP  program ?  ( my guess is that is prob. isnt  as many int only  loans arent )  but its worth checking out ...here is a link to use to check  http://www.makinghomeaffordable.gov/programs/lower-rates/Pages/harp.aspx


if this isnt possible and  if you can get to a point where you have  5% equity - there should be some conventional loan programs to consider

feel free to contact me and  all the best
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March 20
 
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