Q. I have about $35,000 in credit debt. I purchased my home in 1991 for $174,000 and currently owe approximately $152,000. Judging from the sales in the area, my home's value is about $160,000 give or take. Help, is there anything I can do to eliminate the credit card debt?
A. Many lenders today are offering programs to eliminate (consolidate) credit card debt. You can get loans that will go up to 125-135% of the value of your home. If a second trust deed can be obtained, this may be a way to go. Review the interest rate on the first TD and any mortgage insurance premium you may be paying and figure out whether it is better to refinance, at current low rates, the first trust deed for 80% of the value of the home and put a high loan to value second on the home for the remaining outstanding balance.
You must put the numbers on paper and analyze the costs before you commit to any refinance. Always remember that credit card debt is unsecured debt and the second trust deed you put on your home to pay the credit card debt is secured by your home. Be certain that mortgaging your home for these debts is something you are financially and emotionally able to handle.
Q. I am caught in a bind. I contracted for a fixer for $85,000 and got an FHA loan for the purchase, combined with an FHA 203K loan for the repair costs. When I committed to the purchase, the seller required closing the transaction by a specific date or the price would increase by $5,000. Now that I am ready to sign loan documents I am shocked by the loan costs. Do I have any options?
A. If you don't close by a certain date, your price will increase as stated. You did not state whether you are at the maximum ratio for qualifying and may jeopardize your purchase at the higher price. Are your loan costs higher than the $5,000 that you would pay for delay? Your lender should have given you a "Good Faith Estimate" detailing your loan costs at the time of loan origination. Is there a substantial difference? If so, don't hesitate to question the lender.
The 203K aspect will have additional fees that should have been disclosed to you such as a consultant fee to determine what is needed to bring the property to FHA standards as well as an estimate from a general contractor, a fund control fee for inspection and disbursement of the rehab dollars and increased discount and origination points on the 203K portion of the loan. As a home buyer, be sure to get all costs itemized so there are no surprises. This is very important if you are working with a tight budget.
Q. I know what mortgage insurance is and I know that there is no tax writeoff for it. Is there a way to buy a home without mortgage insurance if we are putting down less than 20%?
A. Yes! The programs offered by lenders today have changed so much during the past five years that almost anything is possible if you search and ask questions. I'll give you a few options to start exploring. When you make an offer on the home of your choice find out whether the seller is willing to carry a second trust deed for 10% (assuming you have 10% yourself).
You can now structure a proposal for an 80% purchase money loan, a seller carry back 10% second TD, and 10% from your funds that will result in no mortgage insurance. You can also piggyback a second trust deed with you first trust deed from the same purchase money lender. Your costs are minimal and you can prepay the second TD to liquidate this obligation as fast as you may want. With an equity line of credit second TD, you can continually access the funds you repaid. With 10% down you can also pay a higher interest rate with some lenders and eliminate mortgage insurance. The extra interest expense is tax deductible. Through investigation and creative structuring you can buy a home with no PMI.
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