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Home equity loan with good credit but hight debt ratio

Hello. I got denied for home equity credit. Tried just one time with credit union. I bought a foreclosed house last year 45000$. Today house is worth on market 90000-100000. Did a lot of improvements. My debt ratio is around 88%,never had a late payment in 9 years and still paying on time. Average APR is 20% credit cards (9%-26.99%). Current monthly payment minimum only for credit cards is 1580$. Home equity loan with 8-9% APR would help a lot to lower my monthly payment. I would use it to pay as many credit cards as i can. My credit cards debt is around 45000. I need help so i don't have to file a bankruptcy. Any idea what should i do? Who would give me a loan? i would a close most of my credit cards. My mortgage is in good standing like all my bills. Thank you by vmakus_174_791 from Chicago, Illinois. Feb 12th 2013 Reply


Jeff Albrecht (Doctor_Mortgage)
#94 ranked lender in Texas - 77 contributions

You are actually closer than you think / it is all in the math. I would have 2 concerns: your credit / and your new debt to income ratio, as the new loan to value would ideally require the appraisal to come in more like $110,000-$120,000 to make this work. Ideally - if you have a 660 credit score => then you can do a cash-out up to 80% ( so $45k mortgage + $45k credit cards + $3k in closing = $93,000; then $93k divided by 80% = $116,250 for a required new value when the appraisal is done). $120k for value gives you a little more wiggle room. This then allows you to pay off those credit cards (and the credit cards will be closed too (unfortunately)). So then you are left with a new $93,000 mortgage + taxes + insurance divided by your gross monthly income. Once the appraisal comes in, and if you cannot pay off ALL of the $45,000 in credit card debts, then we don't pay off the lowest ratio card of the balance to the payment, and see if we can get you to clear the debt to income ratio % hurdle. If you have any family members that can pay OFF any of the credit cards for you? I'd also pursue that. Chin up!!!! Jeff Albrecht / JAlbrecht@PrimeLending.com / 512-381-4643

Feb 13th 2013
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Anthony PapaGiorgio (apapagiorgio@inlandbank.com)
#80 ranked lender in Illinois - 16 contributions

Hi vmakus and thanks for sharing your situation. Obviously your debt ratio is a bit of a roadblock at the moment. What type of mortgage are you currently in? Conventional, FHA, VA?

Feb 12th 2013
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It is FHA mortgage. My credit score 659 that i got from credit union. When i check my score is 706 with expirian and 695 with other two.Thank you

Feb 12th 2013
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Anthony PapaGiorgio (apapagiorgio@inlandbank.com)
#80 ranked lender in Illinois - 16 contributions

That is a heavy burden of debt but good job in keeping things in good standing. There aren't any traditional options available to take out an additional loan with that dti even with the equity you have in the property, and with the loan amount where it's at and what rates were last year, getting a lower rate on your current loan won't do anything. As far as working on a plan to take care of the credit card debt, I personally can't advise you in that matter, but I may have someone I can refer you to in that regards if you'd like to contact me on my profile.

Feb 13th 2013
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Joe Metzler (JoeMetzler)
#1 ranked lender in Minnesota - 4,027 contributions

A debt ratio of 88%? You'll never get a lender to give you a loan as it appears you have one foot over the financial grave, and another on a banana peel. You'll have to figure something else out to get out of your situation.

Feb 13th 2013
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Andrew Alfonso (CashCow)
#44 ranked lender in Florida - 271 contributions

That is a heavy burden of debt but good job in keeping things in good standing. There aren't any traditional options available to take out an additional loan with that dti even with the equity you have in the property, and with the loan amount where it's at and what rates were last year, getting a lower rate on your current loan won't do anything. As far as working on a plan to take care of the credit card debt, I personally can't advise you in that matter, but I may have someone I can refer you to in that regards if you'd like to contact me on my profile.

Feb 13th 2013
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Joe Shamie (Joe Shamie)
#5 ranked lender in New Jersey - 1,412 contributions

That debt ratio is goingt o be a problem for any lender.

Feb 13th 2013
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Jason Vondrak (jvondrak)
#219 ranked lender in California - 1,741 contributions

Unfortunately wit that high of a DTI it will be extremely hard if not impossible to find funding. You best option would be to remain current on all payments and pay down the debt before you will be able to take out an equity from your home. Good luck!

Feb 13th 2013
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Others have talked about your debt ratio. I want to address your credit score issue.It is likely that the credit union pulled a FICO credit score which is the only accepted score source for mortgages. I suspect that you pulled a Vantage score from the credit bureaus. When you ordered a credit score if you DID NOT specify FICO you would get the bureaus' proprietary Vantage credit scores. Vantage scores are always significantly higher than FICO scores for the same risk level as they use a different scale. So, it is like comparing oranges and apples. They are both good fruits but they are hugely different.If the Vantage scores were used, which they aren't, it would likely require a 750 or more to equal a FICO 659. Most mortgage companies require a minimum 660 to refinance an FHA loan and some require a 690 for the best rates. You might find a company that will go down to 620 but you will have higher costs for the same rate, or a higher rate for the same costs, or higher costs and a higher rate.Check if your credit report says Fair Isaac Company, the acronym for FICO. Ask the credit union if you can have a copy of the credit report they pulled. Else, buy a copy of your credit report with FICO scores from one of the credit bureaus. Then review what is driving your scores this low. If there are errors in the report simply correcting those errors might get you up above 680. One other action is to increase your credit limit on existing credit accounts--if possible. This does not show up as new credit being opened--you already have an existing relationship with the credit card company. What it does is to decrease your use of credit as a percentage of your credit limit on that account. Smaller usage is better than larger usage, thus increasing your credit score.

Feb 13th 2013
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Garett Hyman (GarettHyman)
#42 ranked lender in Michigan - 14 contributions

Most lenders top end expense ratio usually does not exceed 60%. My suggestion is if you are a member a a credit union visit that option, they sometimes bend for their clients.

Feb 13th 2013
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Dave Metsker (DaveMetsker)
#36 ranked lender in Oregon - 2,317 contributions

Jeff has it all together. You need a smart loan broker, one who knows how to figure debt ratio AFTER the loan closes. Some credit cards require a monthly payment of only one to two percent of the balance, so it may help to pay off only a portion of the balance. Also, you may need to wait until 12 months after purchase, in order to use the full appraisal value, not just the hard cash you put into repairs.

Feb 13th 2013
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Thanks everybody for your inputs. We closed our house on December 16th 2011. The goal now is to keep my payments on time and try to improve my credit score by the end of this year. It should go up for 10 points so i hope i get 670 or more. Then i will try again. But should i go again with equity loan or refinance with cash out? I am just scared to be denied again. At least you guys helped me to put bankruptcy as a very last resort. Have nobody here to help me pay them off. I want to say thank you one more time.

Feb 13th 2013
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