Advice from the experts, please.

Xunil · Joined: 04 Aug 2005 Posts: 2

I'm looking for some impartial advice on a refinance and was impressed with the breadth of knowledge found here. In the spirit of full disclosure, I'm probably going to over inform. Please forgive, and any help would be appreciated.

Three years ago we completed the construction of our new home, in a small neighborhood. We financed via a commercial construction loan of $297,000 and put in about $20,000 of our own funds along the way. We then rolled everything into a 30-year fixed mortgage at 6.5% and a HELOC 2nd of $20,000 at 9% to finish some other improvements still in the work (cleared another 1/2 acre of the lot to take advantage of a great view of the city).

Admittedly we've let our credit cards go nuts as we buy for the new house. We're not in desperate straights or anything but it is keeping us for saving for college and retirement the way we'd like to. There's about $18,000 in car loans and $35,000 in credit card debt along with the 2nd mortgage of $20,000. I believe our FICO would be okay as our debt-income ratio is around 33% and we've never missed a payment on anything, ever. Together we made about $152,000 last year.

Here's the rub... we'd like to refinance in some combo to get rid of the CC debt but there are only 14 homes in our edition and every one of them was a custom, built by each owner. No homes have sold and there are no similar comps close by. Conservatively, we believe the house to be worth $350,000 or more but no appraiser will give it that until someone else in the neighborhood sells. Are we just stuck? Should we consider a 125%, knowing that the value of the home is almost certainly to exceed the +25%?

capnmorgan5555 · Joined: 29 Jan 2005 Posts: 29

I wouldn't do a 125%- I am not a big fan of those I think you could formulate a better way to pay off that extra debt than a 125- and don't let anyone tell you about the tax advantages of the 125%- the only amount that is tax deductible is on that amount that is up to 100% of the value of your home- so the rate you would get plus the high upfront costs probably wouldn't be a good way to go. (Take that money you would have paid upfront and apply it to the initial bill in the plan I propose below)

In my area if there are no homes sold in the subdivision my appraisers look at surrounding subdivisions with similar homes- are there any within a mile of your house?

Here's what I would do to get rid of the bills you have. Line them all up on a spread sheet (or piece of paper) having the highest balance at the top list them in decending order to the lowest. Put the minimum payments that you are required to pay on each in the next column, in the 3rd column put the amount you are paying each month on each. If you could add any extra (it sounds like you could with your income and debt load), then do so.

Make the minimum payments on every bill except the one with the lowest balance. Put every bit of money (especially any extra you are paying on your mortgage) that you can on that bill. When it is paid off roll all of the money you were paying on that bill and add it to your minimum payment on your next lowest bill and repeat until all bills are paid. You will be amazed how fast these will be paid.

Some would say to do this in order of the highest interest rate. Don't worry about that- as fast as you will be paying these off the interest rate won't have a lot of time to cost you much money. The "snowball" effect of paying bills off in this manner will pay everything off faster than if you focused on rates first instead of balances.

I hope this helps.

Haplo · Joined: 20 Jan 2005 Posts: 2406 Location: Springfield, IL

Capn's got sound advice, and I agree with him 100%. I would not recommend doing a 125% loan at all. In addition to the similar subdivisions however sometimes a lender will allow an appraisal with comps currently listed or sold within the last 2 years instead of the last 1 year. Just some other things to consider.

Xunil · Joined: 04 Aug 2005 Posts: 2

thanks for your input...

As for the comps.. there are no homes in our value range within 2 miles that have sold within the last 3 years. There are hundreds of them within 5 - 8 miles but apparently that's too far away for the appraisers (or at least what I'm being told).

As for the CC.. we're currently making a lot more than the minimum on all of them but I didn't consider the other way around. Makes sense, thanks.

chow · Posted: Thu Aug 04, 2005 3:46 pm Post subject:

Here is the 3rd vote on the 125%. don't do it. I have sold more than my fair share of those things, and NO ONE has been able to cut up the credit cards and keep them paid off monthly. Work on paying off your second mortgage, and the lower credit card balances first. Pick the low ones, and pay them off as fast as you can, Make extra payments on the second. You don't have bad rates now, and the cost of the refi along with a higher CLTV on a new loan won't do you any justice. You're better off just to stop using the credit, and paying it off.

You only need 3 no more than 4 visa or master card accounts. Don't open any store accounts because half of them use finance companies, and they don't help your score. (and face it-read the fine print. I swear the interest compounds by the minute with some of them!)

I hate to use Fannie's ad work, but if you've seen the commercial about using credit in a responsible manner, They do have a good point. Just because someone extends you credit, doesn't mean you can actually afford it. What happens if one of you has a job loss? What happens if you want to open a new business?

(you're going to need some reserves-and you can't live off of credit)

chow · Posted: Thu Aug 04, 2005 3:51 pm Post subject:

gawd- I didn't even read the captains full post, and we say the same thing on paying off the credit? :shock:

I knew I liked that guy for more than a mixer in my diet coke! :lol:

Common Sense, that's all it is.