Refinancing With Poor Credit Score
REM # A633
By Ilyce R. Glink
Summary: A homeowner is looking to refinance even though their credit score is in the 500s. Ilyce cautions the homeowners to get a legitimate lender and credit counselor.
Q: I need an answer fast, as we are in the process of refinancing. We have about $55,000 in credit card debt, $45,000 in equity line and our house mortgage is $159,000.
Our credit is pretty bad, so a year ago we went to a credit counselor to help us manage our debt better.
We have been paying the credit counselors for a year, but our credit is still in the 500s. Even so, we found a lender that has offered to refinance us and give us cash back so we can pay everything off.
Should we refinance? We will save money because we will get a 2-year adjustable rate mortgage at 8.1 percent (the high rate is because our credit is so bad). But if we continue to pay the credit counselor, we will pay off all our debts, except the house, in four years.
A: My question to you is, what happens at the end of 2 years? The interest rate on this ARM is probably going to go up. And, unless you have managed to get your spending under control and start paying all of your bills on time, you still won’t have a good enough credit score to refinance into something more manageable.
I think if you can refinance and get everything paid off and then start applying your "savings" each month toward paying down that mortgage as fast as possible, refinancing could be the right move.
But here's the caveat: I've never heard of the company that has offered to refinance you. (I removed their name from your letter before publishing it.) Are they a legitimate lender? Do they report your on-time loan payments? If they do not, in two years your credit could still be in the tank and you'll have nothing to show for it.
Also, do you have a pre-payment penalty attached to this loan? If you do, how long is it for? Can you refinance without paying a steep penalty if you sell the home? What kind of fees are they charging for this loan? If they are too high, you may be setting yourself up for additional problems.
I would have an attorney carefully read over your mortgage documents and check to be sure this lender does not have any complaints filed against it before you sign those documents.
Finally, it sounds as though you are swimming in debt. Is your credit counseling service a legitimate credit counseling organization? You can get a free assessment of where you are budget-wise by calling Consumer Credit Counseling Services of Greater Atlanta or go online to their website (cccsinc.org). At least you'll get a valid second opinion before you make another move that could hurt you.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
Credit by :http://www.thinkglink.com/
REM # A633
By Ilyce R. Glink
Summary: A homeowner is looking to refinance even though their credit score is in the 500s. Ilyce cautions the homeowners to get a legitimate lender and credit counselor.
Q: I need an answer fast, as we are in the process of refinancing. We have about $55,000 in credit card debt, $45,000 in equity line and our house mortgage is $159,000.
Our credit is pretty bad, so a year ago we went to a credit counselor to help us manage our debt better.
We have been paying the credit counselors for a year, but our credit is still in the 500s. Even so, we found a lender that has offered to refinance us and give us cash back so we can pay everything off.
Should we refinance? We will save money because we will get a 2-year adjustable rate mortgage at 8.1 percent (the high rate is because our credit is so bad). But if we continue to pay the credit counselor, we will pay off all our debts, except the house, in four years.
A: My question to you is, what happens at the end of 2 years? The interest rate on this ARM is probably going to go up. And, unless you have managed to get your spending under control and start paying all of your bills on time, you still won’t have a good enough credit score to refinance into something more manageable.
I think if you can refinance and get everything paid off and then start applying your "savings" each month toward paying down that mortgage as fast as possible, refinancing could be the right move.
But here's the caveat: I've never heard of the company that has offered to refinance you. (I removed their name from your letter before publishing it.) Are they a legitimate lender? Do they report your on-time loan payments? If they do not, in two years your credit could still be in the tank and you'll have nothing to show for it.
Also, do you have a pre-payment penalty attached to this loan? If you do, how long is it for? Can you refinance without paying a steep penalty if you sell the home? What kind of fees are they charging for this loan? If they are too high, you may be setting yourself up for additional problems.
I would have an attorney carefully read over your mortgage documents and check to be sure this lender does not have any complaints filed against it before you sign those documents.
Finally, it sounds as though you are swimming in debt. Is your credit counseling service a legitimate credit counseling organization? You can get a free assessment of where you are budget-wise by calling Consumer Credit Counseling Services of Greater Atlanta or go online to their website (cccsinc.org). At least you'll get a valid second opinion before you make another move that could hurt you.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
Credit by :http://www.thinkglink.com/
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