Home loan advise needed

Too many questions unanswered; How much do you owe on the house? How much is is really worth (i.e. how much would it appraise for?) What's the status of your credit? (credit score, late payments, etc.) Other outstanding debt? How Much? Available sources of money? What credit lines do you have available? Credit cards? 401(k) loans? Equity line? Friends/Family?

Why do you think things will change in a year? And by how much?

I'm sure I/others here can come up with more questions after you reply, but at this point you've given too little information for a response that's anything but more questions. (I hope you read this as a desire to help, just can't without more details)

JOE

There isn't much to go on here. This is like going to the doctor and saying that you don't feel well. The doctor has no clue if you have a headache or you broke your leg unless you tell him or her where it hurts.

In my opinion, if you are financially strapped, the last thing you need is more loans. Perhaps you bought too much house, and should consider putting it on the market, and buying something that you can afford. Or maybe you have enough money, but you are spending it foolishly. You would be amazed at how many people have $40,000 pickup trucks and SUV's who don't even earn $40K a year. Just because they will let you have a loan doesn't mean that it is a good idea to take that loan.

-john-

we currently have

If you are certain that you'll have more income in a year, then maybe find a way to "budget" out the crisis. Closing a home loan could cost between 2k-16k (or even more). If you were to do this "twice" in the next 2 years, that could be 32k of expenses you could avoid with creative budgeting.

As other replies indicated, I suggest commenting on the specifics of your situation.

General problems get general solutions. Specific problems MIGHT get specific solutions.

I agree with jIM and John Weeks as I recall he commented that a loan may be the last thing you need at this time. What caused you to be "financially strapped"? For example, was your situation created by credit card debt, medical, or just poor financial management.

You need to lay out your "budget" (projected income and expenses) by month for the next year. Then scrub the expenses particularly those like gifts, dining out, etc. If this does not bring your budget into balance, then look for ways to increase your income. For example, get a second job, etc.

Good luck, BeachBum

You all may be correct, but we know nothing about the OP. Just that he's in a crunch that he suggests will go away in about a year.

Why jIM feels that a refi is a $2k-?? expense, I'm not sure. My last 4 refis were no point, no closing. So, the 'rules of thumb' regarding mortgage rates needing to drop x% to be worth it went out the window. I'd like to see OP's replies before we speculate further. His situation may be anything, we're just guessing here. JOE

For the OP - I forgot to add to my previous post that I have a simple spreadsheet format which I use for budgeting. If you would like to try it, just email me and I can send it to you as an attachment in Excel or Microsoft Works format.

BeachBum

okay, not enough info. the reason for the drop in income is because of a job change. job now relies on seniority and i am only 2 years in. last year my spouse went part time as i am now on the road with the new job.(crazy unpredicable schedule/2nd job not an option) we have been told a large amount of people will be retiring within the next year which will definately help the seniority situation. first year at new job everything was fine - a couple of slow months but nothing compared to the last 6 months. Income practically nil in December and January and we had to rely on credit cards to make it. credit card debt has doubled in last 6 months. house - owe 265k - current int. rate 5.75

2nd - owe 42k - int rate 6.75 approx value - 400k credit cards and vehicle - 35k - 0 int until Nov 2008 great credit but probably going down due to income vs debt situation question: should we sell the house we love? should we do some crazy int. only loan? are there any "safe" interest only loans and where would i go to get a loan with zero closing costs?? any advice greatly appreciated!!!!!!

I have a secured line of credit (LOC) with my home as the "collateral". The interest rate is lower than other say bank loans, it's life insured. And it's just like any other account ... take money out, put money in. Not so useful to me anymore but I keep it anyway ... just in case. As in maybe in a week or three, I'll use it to pick up a few equities.

As I see it, you are on the path to bankruptcy. The only question is how long you hold on before it happens, and how much do you loose in the process. Or, do you take proactive action?

If you house really was worth $400K, you have $13,000 in home equity credit available. You might be able to get a 3rd on it. It will be in the 10% range, however.

In guessing at your payments, taking 1/2% on the mortgage and

2% on the consumer stuff, you must have $3500 a month in payments here, and that is to just wake up in the morning. There is no utilities, taxes, food, etc factored in. That is over $40K a year after taxes, over $70K a year pre-tax. Unless you job is paying better than $100K a year (assuming you have no kids), then you are on the path to disaster. The interest on the debt will grow faster than you can pay it off, and it will end up where your minimum payments exceed your income.

If you add more debt, then you have to add more income. Unless you are looking at a $150K a year job, then you have way too much debt going on. The house you love will soon be the house that sinks you to the bottom of the river of debt. And that isn't even taking into account the housing bust. A house that was worth $400K last year could easily be worth only $370K this year, and $355K next year, assuming that you can sell it at all. Houses here in that range are sitting on the market for nearly a year.

My advice is to put the house up for sale, rent for a while (rent is very cheap these days), get yourself back on your financial footing, and when you have a 20% down payment saved up, look for a $250K house.

If you want to try to keep what you have, and you don't mind the high risk of going through bankruptcy, then I would try selling the cars and picking up a $2000 beater. Use the cash to pay off credit cards and home equity loans to try to reduce the monthly drain. If you still need more, try to get that $13K in home equity. Then rededicate yourself to working 24x7 to try to fix the job problem. If you have time, deliver pizzas at night and newspapers in the morning. And get your spouse back up to full time. You married a house, so now you have to live to work to make the payments. Everything else is out of the question until that house is taken care of. That is what you get when you love a wooden box.

-john-

My understanding with "interest only" loans is they are interest only for ~10 years, then final 20 are ammortized. The interest rates are also much higher than 5.75%.

You have 100k equity in current house/ 25%. While a risk, an option to consider is tapping into this. Changing budget is something to consider Downsizing house is something to consider refinancing second might be something to consider

Can you wife work full time?

0 closings costs is an answer I want to see from joetaxpayer (or another poster).

best of luck to you

I agree, jIM, having the wife work full time is an option. The first mortgage is pretty low, refinancing it wouldn't make much sense. Income may not be enough for a bank to refinance the second, but worth asking. I got the no point/no closing from 'Regular Banks' within my state (Massachusetts) not through a broker or finance company. The rates were always about 1/4% higher than the full cost mortgages, which would have been more than $10K, and my logic was that by not paying the fees, I guaranteed myself I'd end the cycle at 1/4% above the bottom. No other magic there.

OP doesn't state income or expenses. As you suggest, now is the time to review the budget. Cut the cable. No meals out. Get movies from the library. Wear a sweater. No Starbucks. It's amazing what one will find if they spend three months and write down every cent they spend. For many, that's enough to make a difference.

JOE