My husband and I are trying to refi our existing loan. The issue is our fico scores have dropped since the purchase to around 550. The original loan was an ARM at 6.5 percent. The quotes we are receiving are also for ARM's at 9 percent. We need to pay off debt and are looking to cash out approximately 20K.

My husband is skeptical of refinancing because of the interest rate. Can anyone offer any suggestions?

Anything you get now should you decide to refinance will most likely have a pre-payment penalty and will most likely be a 2/28 ARM. My suggestion would be to pay down your debt as much as possible before thinking about refinancing. This will have a great impact on your credit score. Also if you know anyone who has a credit card with a limit of over $10,000 and a balance of less than $3,000, and the account has been open for at least 36 months, have them add you as a second card holder. This will shoot your score up dramatically. The rate you have now is not that bad. I would avoid refinancing at this point if at all possible.

Thank you for your advice. The ARM we currently have is 2/28, and the rate is due to increase in June. Our current lender is stating that the rate will increase every six months. I'm concerned that if the rate increased every six months that by next year this time we will be close to 9 percent.

This entire process is very confusing to me, in no way has it been as easy as acquiring our initial loan. Would a line of credit be an option or a second mortage. My husband is considering a second mortage but I don't see how this would be any more beneficial than refinancing.

Thanks Again
Ranae

Consult a mortgage broker in your area.

Try having a broker in your area get you approved for a Fannie Mae Level 1, 2 or 3 approval. These approvals are for people who have less than perfect credit and if the broker knows his/her stuff they may be able to tweak the system to get it to go. Without seeing your credit its hard to say for sure but it's worth a shot. You would get a 30 yr fixed w/o a pre-pay on that loan. Those loans do require private mortgage insurance for loans over 80% of value and it can become too expensive to go that route if you require MI. Speak with a top of the line broker in your area so your not forced to take the subprime loan when you may not need to. FHA may also be an option if your credit is somewhat clean in the last 12 mnths.

what does the "28" mean in 2/28?

2 year fixed rate, 28 year variable rate...on a 30 year mortgage.

"Try having a broker in your area get you approved for a Fannie Mae Level 1, 2 or 3 approval." by Dwyer

LOL!!! With a 550?!?! I'll have some of what you're smokin'!

so whats a fannie mae level 1, 2, 3 approval mean?

Thank you for your replies. AZLender I think we are going to take heed to your suggestion and wait it out. After speaking with our broker concerning a HELOC, we were told that with our score that basically wouldn't be much of an option either. Thanks again for the help.

Ranae

It's an expanded approval risk level.

"LOL!!! With a 550?!?! I'll have some of what you're smokin'!" by AZLENDER

556 FICO - Level 2 closed last month !! Just have to be smarter than the DU system.

Don't do the heloc it's counted as income and puts you in a higher tax bracket.

I hate it that you went with a 2/28,you should have went with a 80/20 int only with a fixed 5 or 10 year term,which at the time the interest rate would have been just a little but higher but not much.If you had done that you wouldn't be worrying right now about rate increases.

These short term arms with high caps are the worst loans possible and are the cause of many,many foreclosures.

People often go for th elowest payment possible without understanding the loan.To be honest what you need to do is evaluate your lifestyle and make changes to pay down your debt and get it under control.

Length of active credit history in good standing,balance to limit of accounts(optimally you want to be at 33% balance or less of available credit),keep credit inquiries you initiate to under 7 a year,any deliquent accounts that are more than 6 months old that are collection or charge offs do not pay you will refresh the old account and make it a new active collection account hammering your score.

Here is another tip if you know you will be moving soon do not refi as it doesn't make sense to pay those costs and then move.

some great response for you mrsblackninja109. Although rate is very important you also need to look at the benefit of paying off all of your current debt. Where will you be in 2 years if you eliminate the revolving credit card debt right now. How much money a month are you actually saving, and how long do you intend to stay in the current property. To often we get caught up in the rate game because it is the only number we understand right away. Are you using all of the equity in your home? A second mortgage is probably out of the question with your current scores.

Thanks again everyone for all of the information you've shared. We wouldn't be using all of the equity in our home, we bought the house at 125k and we now have about 50k in equity. We were thinking to take out about 20K. Our savings right now is minimal and although we are able to maintain our payments on our accounts there is little to nothing left over at the end of the month and that is with the minimum payments being made on most of our credit cards.

We do plan on moving in the next 3-4 years but that decision is not set in stone. Our main concern at this time is paying off the credit cards and eliminating the unnecessary debt. We have talked to a mortgage broker about a HELOC and a second mortage and as stated by other members that basically isn't an option for us.

The part that I don't understand is our interest on our credit cards range from 14%-22%. Although its painful to think about the disaster we have created, I'd must rather pay 8% on a mortage loan and rid myself of the other headaches.

Thanks Guys,
Ranae