Loan Officer Dustin
Loan OfficerForum Replies Created
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I have learned to make sure the agents involved, especially the selling agent knows what posting FHA-compliant home actually means. You will be surprised how many agents do not know what this means.
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Traditionally, you would be looking at a HELOC or 2nd mortgage in the scenario you mentioned. If this were my client, I would talk to them about a “long-game” scenario. If they have enough equity to lower or eliminate the debt with the highest monthly payments, then you have options. The key to this is financial discipline once the initial transaction is completed. The 1st transaction will be a C.O. refi with a 30-year term. This will keep the new monthly payment as low as possible. The money the borrower will save monthly from a reduced monthly out-of-pocket expense will initially be used to supplement the slight increase in the monthly mortgage payment. The benefit is or should be, that their credit score will rise over the next 12 months. If there are additional proceeds left from the reduced monthly out-of-pocket expenses, those funds need to be allocated toward smaller debts being paid off during the following 12 months. After 12 months, the borrower has an increased credit score, which means you should be able to get them into a Conventional loan with no MI (instant savings) and you now look at two options for them. Either one more C.O. refi to cover a rate buydown or a traditional R&T. I usually suggest an R&T with a reduced term to 15 years and in our current economy, a rate buydown. The 15-year term will get them a lower interest rate, the Conventional loan saves money, (No MI) as I mentioned earlier, and the final option of the buydown drops the rate even further. Now your borrower has reduced their monthly out-of-pocket expenses, and is in a Conventional loan, with a shorter term, usually with no pre-payment penalties. Hopefully, the borrower has learned their lesson and stays within their financial means moving forward.
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In my opinion, it is a good idea to get with both agents to make sure they know what they are doing and what to look for in a VA or FHA transaction. Cash-out or purchase.