You have mortgage questions, and we have answers.
Bankrate senior mortgage reporter Holden Lewis recently answered borrower questions about home loans during a live chat on Boston.com. Bankrate is publishing the highlights of that Q&A session.
Following are answers to five additional questions:
Should I tap my 401(k) to pay the mortgage?
I have two mortgages (a primary and second). My equity on the home has gone down in the last couple of years — I have paid down $65,000 of my original loan, but the house is still worth less than what I owe.
I can pay off my second loan by taking a 401(k) loan, but I’m not sure if this is the right thing to do.
Consult a financial planner on that one. I doubt a planner would think it’s wise to borrow from your 401(k) to pay off a second lien. But maybe there are other issues to consider. I kind of doubt it, though.
Why borrow against your retirement savings to pay off a second lienholder of an asset whose value is declining?
Will lenders court an underwater borrower?
I’m looking to do a HARP refi. I have heard that because it’s a Fannie Mae loan, I don’t necessarily have to go with my existing lender. How and where do I go to shop rates? Are lenders generally reluctant to pick up another loan that’s underwater?
You could try looking at the rate tables at Bankrate.com. Or, ask friends, family and co-workers for referrals to lenders. When you rate-shop during a short period (two or six weeks, I believe, depending on the lender), all of your mortgage inquiries are lumped together as one inquiry for credit-scoring purposes.
Yes, lenders seem reluctant to pick up underwater HARP refis. But sometimes they do it.
Can I refinance again after 3 months?
I just refinanced about three months ago, when rates were 50 basis points higher than today. Is there any reason I can’t refinance again now?
If anything blocks you from refinancing a 3-month-old loan, it would be the recorder’s office. Back in 2003, mortgage recordings were backed up by months in many county recorders’ offices, stalling refinances. As long as there’s not a delay there, you should be able to refinance.
Why does my lender downgrade my credit score?
We have been trying to refi, but are hitting so many roadblocks. Our house just appraised at more than $1 million and our mortgage is $389,000. We do have a high debt-to-income ratio, but we have no late payments.
We have been keeping track of our credit report, and the range is 699 to 745, with the middle score being 720. However, when the bank runs the credit report, the credit score is around 659, which was just below the 660 we needed. How can there be such a difference between what we see when we run our credit report and when they run it?
That’s weird. I’m not sure what accounts for the discrepancy. Ask the lender to show you the credit history part of the credit report. If there are any errors, ask the loan officer to get a “rapid rescore.”
With your profile, even with a high debt-to-income ratio, I would think most lenders would be eager to lend to you because of the low loan-to-value ratio.
There might be issues with credit card balances near the limit. Just guessing.
Does a second mortgage complicate my refinance?
I got a home at $415,000 and now the value of the home is $365,000. I owe $350,000 now and would like to refinance for a lower rate. What are my options? My first loan is $300,000 and the second one is $50,000.
This is going to be difficult to do. The second lienholder will be reluctant to resubordinate — that is, to agree to remain in the second lien position after you refi the first lien. You could try to refi all $350,000 under HARP.
Now, things would be easier if you could throw $50,000 at that second lien and get rid of it. But if you had that kind of money, you’d be a billionaire dining at Applebee’s every night. (Sorry, that’s an extremely obscure reference to a “Kath & Kim” episode from 2008.)
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