Diane St. James - Home Loan Questions Answered By An Expert

December 30, 2004
Low Credit Score
I'm looking for personal loan, but I have damage credit. Is it possible for me to receive a loan? My fico score is at (475).-FRANKIE.BUCKLEY

DIANE SAYS: You may find a hard money lender but it may be difficult with that score. It would help if you had something to secure it with (as opposed to just a personal loan). If you have a relative with good credit who would be willing to co-sign on a loan, that may be another option as well.

December 29, 2004
Filed Bankruptcy
What if my spouse and I filed bankruptcy on credit cards, and our home because we are unemployed and can not make payments. Can we purchase a home in the future?-albertburts

DIANE SAYS: Yes, it is possible to buy a home after bankruptcy. You may need to wait a few years and will more than likely have to pay a higher rate than if you had not filed bankruptcy, but it is far more common nowadays for folks with a prior bankruptcy to buy a home two or three years (sometimes less) after their bankruptcy is discharged. The best thing to do after bankruptcy is to start trying to build new credit. I can give you some pointers on that. Just call me. I provide phone consultations for this sort of thing. 1-888-464-3646, extension 0313808

December 28, 2004
First Time Home Buyers Program
My husband and I are looking to buy our first home in a few months and wanted to know who do I need to contact about first time home buyers programs? I don't even know where to start on contacts.-m.friedley

DIANE SAYS: You can start by searching at any search engine such as Google under first time homebuyer programs and narrow it down to ones available in your state or county. You can also contact your local government offices and ask there about any first time homebuyer programs. Then there are always the local brokers and lenders as well. If you'd like guidance and advice through your process you can use my full consultation package.

December 2, 2004
Debt Consolidation
I am disabled. I called and asked someone from a mortgage broker agency about consolidating my husband's and my debt, and he told me he needed $350.00 to do an appraisal on our home. I said that as long as we could get the money back if things didn't work out, I would send him a check as soon as my disability money went into our bank. He said, and I quote "I don't see a problem with that". I am thinking he means that if for any reason we do not get or go through with the loan, we get the check refunded, as he implied. Unfortunately, he was not honest. As the days go by I find out this fact each time I talk with him. My husband says to withdraw the application and I do. I also stop payment on the check, since he is obviously not going to honor his word and refund it to us. What can be done about this? I tried to contact his superiors and tell him about this person, but he will not even return my calls. All I want is my check. -Sharon

DIANE SAYS: I do not know exactly what has transpired and what sort of promises were made to you. I always do tell my clients to keep contacting someone 'higher up' until you get the results you are looking for or at least get some attention and get things explained to your full understanding.

I will say this much. Many lenders require that the appraisal be paid for up front and usually this is NOT refundable. If the appraisal on your home has been done, that means that appraiser has done his/her job and expects payment. The appraiser is a third party provider and not your mortgage broker so the $350 would go to pay for that service that has been provided, regardless of whether your loan is approved or not.

If you did stop payment on that check, then it cannot be cashed and you can pursue refinancing with someone you feel more comfortable with, but just know that the appraisal fee may still be required up front as that is often standard refinance procedures. If mortgage lenders/brokers did not charge for the appraisal and the appraisal was done but the loan didn't go through or a borrower changed their mind, they would still have to pay the appraiser their fee and that could get quite costly.

I suggest you ask to be pre-approved before you fork over money for an appraisal. This way at least your credit and income can be verified and there would be more assurance of the loan going through (pending the appraisal)

November 23, 2004
2nd Mortgage
New home spending (furniture, add-ons) ran up my credit cards significantly. I would like to raise my credit score by paying off credit card debt. I am carrying high balances (over 80%) on 7 cards. My home is new, thus no equity - 100%LTV fixed 30 yr 5.5% loan (interest only for 1st 10 years). Would my credit score improve significantly if I got a 2nd mortgage to pay off the 7 cards, or would the 2nd mortgage negatively impact my credit rating to offset any improvement made by paying off the cards? -Rob

DIANE SAYS: Getting a second mortgage to payoff credit cards is not a bad idea as long as you don't start racking them up again. Don't close the credit cards though either (as long as you can keep from using them except for occasionally). This way your available credit amount will remain higher and if unused will help in the over level of debt that makes up part of the credit score. As the length of time increases that your credit cards are paid down to 0 and you only have your first and second mortgages with timely payments, you should see an improvement in your credit score.

Keep in mind two things. One, if you are going for one of those high loan-to-value loans that go up to 125% of the value of your home, be prepared to pay anywhere from 14%-17% as these loans are considered high risk and do not carry the low interest rates that are common for 100% and lower loans.

Two, you may not be able to deduct much if any of the interest paid on your mortgage since it will probably be more than 100% of the value of your home, but check with your tax accountant to be sure.

November 21, 2004
Maximum Times for Refinancing
I have been in my home for three years now and have refinanced. Is there a limit on how many times you can refinance ?-Alonzo

DIANE SAYS: No there isn't any limit to how many times you can refinance. I do want to caution you however as each time you refinance you undoubtedly are paying closing costs. If you are getting a no closing costs refinance your costs are built into the rate, trust me.

Before the next time you think you want to refinance, Have a phone consultation with me to see if it really Will be worth your while. You can reach me through Ingenio.com at 1-888-464-3646, extension 0313808

October 25, 2004
Lower My Monthly Payments
I have home equity loan of 45000 dollar and I pay $280 month for it and my interest rate is 6.45. I would like to bring down my payments on this loan, also make it fix for 10 years what should I do?-Riva

DIANE SAYS: You didn't indicate what your balance is currently and what type of mortgage you have on it now. I'm guessing by your payment that it is a home equity line of credit. If your balance is indeed $45,000 and you wish to make it a fixed rate for ten years, your payment will undoubtedly be much higher because you are reducing your loan term significantly.

Contact the lender you have that equity mortgage with and find out what your options are. You may find that although you want to change your loan term to a 10 year term and make it a fixed rate, your payment would not be being reduced at all and perhaps increase quite a bit.

I can do some number crunching for you. You can phone me for a consultation and I can give you an idea of what you are looking at if your lender is difficult to reach. Simply go to http://www.abcmortgage.net/ and click on Live Phone Advice located in the blue box and if I am not available you can choose to set an appointment. Evening is best for me.

October 24, 2004
Credit Score & Home Loans
How high of a credit score should I have before even considering getting a house? -Morris

DIANE SAYS: The higher the better. As long as your credit score is 620 or better there is a good chance of you obtaining a regular conforming type of mortgage. Much lower than that and you can still have a good chance of getting a mortgage, but the rate or costs may be higher due to the higher credit risk associated with a lower score.

October 21, 2004
Already Signed Contract
I recently was pre-approved for a 100% financing home loan and they sent me the application paperwork which I signed and dated on Sept. 23. Unfortunately, I am reconsidering the home loan as I am realizing the effective payment is too high for my budget. The home loan is around 900 for mortgage + up to 400 for taxes, insurance etc. Does this application make be legally bound to accept the loan? My offer for the home, contingent upon inspection and appraisal, was accepted today, Oct. 22. What options do I have if I decide this loan will not work for me? -Spence

DIANE SAYS: If you already have a signed accepted offer by the seller, you have a contract that you have agreed to. The only way you can get out of this purchase is if the inspections on the home don't pass and the seller refuses to pay for any necessary repairs (unless you bought it as is),
or if you get declined for the mortgage. If you have already been pre-approved by the lender, they cannot turn around and just decline the loan for you because you now want out of it.

If you were pre-approved, hopefully a loan officer did the number crunching for you and you are just in buyer shock and worried you can't handle the payment.

You can always ask the realtor if there is any way the seller would agree to back out of the contract perhaps for a small portion of the down payment, but they don't necessarily have to accept anything. A contract is a contract.

October 21, 2004
2nd Mortgage Loan
WE have one mortgage on our house. A couple of years ago we went to the same loan company and ask for a personal loan. We received the so called personal loan. WE are now in the process of selling our home. We have found buyers and went through all the process. WE requested a payoff on our home mortgage, we received the payoff amount. Now our mortgage company tells us we have 2 mortgages on our home. We are not suppose to have 2 just one. Can they do this without our knowledge? -Barbara

DIANE SAYS: Do you have the documents from that personal loan you supposedly took out? That would be your key in determining what kind of loan it really was. Unfortunately you'll probably find out that it was indeed some sort of mortgage or equity line on your home requiring the second lien to be placed on it that you just discovered.

You can certainly go back to this lender and ask that the loan be converted to a personal loan as was your original intention, but they don't necessarily have to accommodate you. They may take the stand that you should read everything before you sign something.

You could consult an attorney to see if there is anything else that can be done, but the fact is if they disclosed the fact that this was a mortgage in any of the documents you signed, you may not have any choice but to pay it off.

October 10, 2004
Car Purchase before Home Purchase
Is it ok to buy a new car before closing on our home loan?-Dena

DIANE SAYS: I never recommend anyone make a large purchase prior to closing, in case the ratios were tight and a new credit is pulled prior to closing which is often done. Try to wait until you've had settlement and make sure you look at your whole financial situation including this new mortgage when determining the size of a car payment you can comfortably handle.

October 3, 2004
Pre Payment Penalty
My question is that I moved in my new house two months ago. I built the house and by the time I moved in my house price went up around 100 thousand dollar. When I bought my house I got high interest rate, I'm trying to refinance and take out some money from my equity. But, I'm going to have to pay pre payment penalty. I've already calculated it and it still better to pay the penalty and refinance. My question is that does the lender add the penalty money and closing cost to my mortgage? Or do I have to come up with cash? Since I don't have cash right now, I just want to know how they do it. -Hanna

DIANE SAYS: The prepayment penalty is added to your total payoff balance of your present mortgage. The lender will only add the penalty and closing costs to your loan amount if there is enough equity to do so. Since you moved into your house only two months ago, a lender may choose to use that value as the market value and not the quickly inflated value that you say it is now worth. In some areas home values have been increasing at an incredible rate and at some point the bubble is going to burst.

So make certain the lender you go to for this refinance is willing to look at the most recent market value, or you may not be able to refinance at this time.

September 27, 2004
Getting a Better Home Loan Rate
I am in the process of trying to get pre-approved for a mortgage. I do not have the best credit, however all of my debts are either paid or in good standing. I am doing well re-establishing credit after years of family trouble. Are there any other prerequisites that will improve my rate and/or my success in applying for a home loan?-SuYun

DIANE SAYS: Keep making all your payment on time, don't close any open account though as that may actually affect your score. Other things that affect the mortgage decision are employment stability, liquidity (assets) and of course the condition of the property you wish to purchase.

September 24, 2004
Home Equity Loan VS. Consolidation Loan
What is the difference between a home equity loan and a consolidation loan? Which one looks better on your credit report?-Lori

DIANE SAYS: A home equity loan is secured by your property and a consolidation loan may not necessarily be a secured loan. It may be just a large personal loan with the purpose of consolidating debts into one payment. A home equity loan may be used to consolidate debts but may also be used for home improvements, college costs, or any other expenses that come about.

If you make all your payments on time they will look about the same on your credit report, although from a creditor's viewpoint, a secured loan payment history is more important than an unsecured loan payment history.

September 23, 2004
New Roof Financing
I need $6000 for a new roof. I have no equity in my home and I have had my mortgage for 6 months and 620 credit score. Nobody will help me in the financing of the new roof.-William

DIANE SAYS: Have you tried asking some of the larger roofing companies in your location if they possibly offer financing themselves? Some of them do. Have you tried several different lenders in and out of the area to get just a small line of credit? There are some lenders that may lend up to 125% of the value of the house, but it will depend on their credit criteria. If all else fails and you really need a new roof NOW, there is always the credit card.

September 23, 2004
Interest Only Loan
Is there a new type of loan that allows you to pay interest only for the first five years then lowering your initial output? We are putting 100,000 down and home is 529,000. Thanks.-Laurie

DIANE SAYS: There are loans available that do start out with a low initial interest only payment option. Often these loans offer various payment options each month including an interest only low payment. You can just do a search for interest only ARMS or MAT ARMS. Just make sure you read the fine print as most of these loans do allow for negative amortization -meaning your loan balance will undoubtedly end up going higher than what you initially started out owing and sometimes by as much as 10% or more.

September 21, 2004
Home Loan - Retirement Plan Penalties
HELP!!!! - My husband and I are in the process of buying a home - in escrow, actually. The problem is that my husband, who is taking a hardship withdrawal from his retirement plan to cover the closing cost of the purchase, will not be listed on the loan of the home due to his credit. Although it's our intention to add him to the title of the home after the close of escrow, the loan will only be in my name. Are there any legal disadvantages or penalties for his taking the money out of his retirement plan if his name is not on the purchase loan? -Melody

DIANE SAYS: It is best to check with his retirement plan administrator to make sure that there is no tax implications or that it is considered an illegal withdrawal since he is not going to be the actual borrower, but his spouse is. If he doesn't get a definitive answer from the retirement administrator about the tax penalty issues, you should ask an accountant about the possible penalties.

September 20, 2004
Refinance Mortgage
What is the least amount of time you have to be in your home, before you will be able to refinance?-Joy

DIANE SAYS: It depends on what you want to do Joy. If you are refinancing for the sole purpose of reducing your interest rate and you are prepared to accept the fact that the lender may use the same value as when you purchased the home if it has only been a few months, there is no definite least amount of time.

Otherwise it really depends on the lender. If you wish to take cash out of the home by refinancing and are using a higher value for the property that you think it will appraise for, I suggest waiting approximately a year before refinancing.

September 16, 2004
Home Equity Loan
I have a balance on a loan of $338,000 at 6.5% and a 2nd at 8%. Both have high prepay penalties. I need $50,000.00 for an investment. The value of my home is $450,000.00. What is the best loan for me?-Joy

DIANE SAYS: Since your first mortgage probably carries a higher prepayment penalty based on the loan size, your best bet if you need to tap into your equity would be to refinance the second mortgage and take out the additional $50,000 you need and pay the prepayment penalty, assuming there is enough equity. You could always try for a third mortgage as well instead if there is enough equity and you find a lender that will take third lien position.

September 12, 2004
Dispute Credit Report Item
I am trying to buy a home, but my credit report has as old gas bill which I cannot not pay and my loan has been denied because of this. Is there any thing I can do? The bill is $11,000.00 from a building I was trying to help my mother with from 1999. The building is involved in a lawsuit because of fraud done to my mother the civil suit is still in process please help me, so I can get my dream home, I need some solutions. Thank You very much.-Judy

DIANE SAYS: You really should consult an attorney about this but sometimes if there is something tied up in litigation and the bill once the civil suit is settled may be easily covered (or dropped)..a strong letter from an attorney with proof of the pending civil suit may be sufficient for a lender to allow that to remain unpaid at this time.

But again, your best bet is to consult with an attorney.

September 10, 2004
Home Loan with Bad Credit
Is it impossible to get a house loan w/ bad credit? How does that work, what needs to be done to start the whole process?-Amber

DIANE SAYS: No, it is not impossible to get a house loan with bad credit. You will have to pay the price though in the way of a higher rate, higher closing costs, or both. You may also need to put more down than you otherwise would be required to if you had better credit.

The best was to start off is to work on your credit before you even think about trying to get a loan. Get a copy of your full credit report and try to clean up what you can. Bring past due accounts current and investigate anything that doesn't appear to be correct on your report and get it corrected by contacting the creditor and corresponding with them concerning the discrepancy.

Then with your credit history improved, the credit scores should go up within a few months and increase your chances of qualifying for a mortgage. Best of luck to you!

September 8, 2004
Refinance Mortgage with Low Credit Score
I would like to refinance my home but my credit score is low. What should I do?-Meral

DIANE SAYS: If your credit score is low and you are refinancing for the sole purpose of lowering your rate it may not be possible to get a lower rate due to the credit score. Your current score may put you into a subprime category and then depending on the rate you have now, you may be facing an even higher rate.

If you want to do a refinance mortgage to pull out some equity in your home, just be prepared that you rate and costs could be higher depending on your how your credit history and score compares to when you first took out your current mortgage.

Another option if you are trying to tap into your home's equity is to apply for a home equity line of credit and leave your first mortgage alone if the rate is good. Again, it may be harder to get a line of credit if your credit score is low but I at least wanted to point that out as a possibility.

August 26, 2004
Loans > Refinance Mortgage
We have a current loan of 8%, we never refinanced because we are not planning on staying in the house for long. We need to purchase a new vehicle and will have new teenage driver so our monthly expenses will be jumping several hundred dollars. If you are refinancing $150,000 what type of loan would you recommend? Is it worth it and what is the time line for recouping the closing cost. I saw a lone with a negative 1% discount rate - what is that? -Cindy

DIANE SAYS: If you are currently paying 8% it would be an excellent idea to do what is called a cash out refinance to pay off that principal and take enough for a new car if you'd like to do that instead of having a higher separate car payment. You can even ask for a term that matches the number of years you owe on. There are lenders who will do 23 year loans if that how much time you have left to pay your present one off.

The time it takes to recoup the closing costs will vary and depend on the total amount of the closing costs and the loan amount. Usually it takes 1 ½ - 2 ½ years to make up for the added closings costs. But if you have a loan at 8% and you can refinance at say 6% or even less, the monthly savings from what you are paying now will be worth it.

I'm not sure where you saw a loan with a negative 1% discount rate.
Sometimes a broker's rate sheet may indicate various combinations of rates and points that they charge and if this is what you saw it may mean that a certain rate will pay them 1% back so the rate may be slightly on the high side. If it was something else you saw, it could be some sort of marketing tactic. It is hard to know when I don't know where you saw this.

August 14, 2004
Loans > Home Loan
How long does a FHA loan take to close?-Brenda

DIANE SAYS: This will really depend on the lender. A lender who does these types of mortgages on a regular basis shouldn't take any longer than on a regular conventional mortgage, especially if they have their own FHA underwriter on staff. If the lender has to send the loan in for FHA approval, it could take a bit longer.

August 12, 2004
Loans > Home Equity Loan
We are considering flex line of credit home equity loan in order to clean up some of out credit card debt. I am thinking of taking on one credit card at a time and then paying off the line of credit. What kind of percentage of your balance do they bill you as interest only?-John

DIANE SAYS: It is a good idea to use a home equity line of credit for debts since depending on your tax situation you can in most cases deduct the mortgage interest you pay on it from your taxes (if you itemize).

You can start with your highest balance, highest interest rate being charged credit cards and go from there.

The minimum payment due is often 1% to 1.5% but you should check with your lender as to what the minimum payment is. Watch out though because sometimes the minimum payment isn't much more than the interest that is adding up and you'll want to pay enough that you are bringing down the balance.

August 10, 2004
Loans > Home Loan
How do you go about getting a home loan if you have bad credit?-Latrell

DIANE SAYS: It would be a good idea to get a copy of your credit report and clean up your credit as much as possible before you actually think about applying for a mortgage.

After you have done what you can, and your credit history and score is going to take a while to improve, there are mortgage programs available depending on the extent of your derogatory credit history. This type of loan is generally referred to as a subprime mortgage and it will be at a higher interest rate and often higher closing costs than if your credit were what is considered good.

You can contact a mortgage broker or large mortgage company that has access to many of the subprime loans that are offered and ask about the best loan for your situation.

July 1, 2004
Loans > Home Loan
My wife and I make about $66,000/ year. I have decent credit and my wife has great credit. Each month we have about $600.00 in total monthly recurring debt. We are looking to purchase a home in the price range of $115,000-125,000, My wife has been at her job for 5yrs, but I however have just changed jobs to make more money. Would we qualify now? Do I have to be with this new company for 2 years or is there a way of getting around that? - John

DIANE SAYS: If you are in the same line of work and there isn't a large gap between jobs, there should be no problem using your current employment. In general if you stay in the same line of work and get paid the same way, it would make sense and therefore be acceptable.  It would only be an issue if you went from one field that paid salary to either the same or another field that paid commissions only.  This would make it more difficult. But your wife could possibly qualify on just her own if need be, depending on how much of the total $66,000/year is her earnings.

June 25, 2004
Loans > Home Loan
I am a teacher, and looking to buy my first home. I have a fair credit score (620 to be exact.) I am currently looking to buy a house in the SC area, and have 3,500 saved as a down payment. Is buying a house now possible? What sort of loan should I be looking for? Thanks! - Rebecca

DIANE SAYS: Only you know whether buying a house right now is possible. Try to compare what you are paying for in housing expense now to what the potential mortgage payment would be including taxes and insurance and determine if you could make the payments given your income and other current debts.

Depending on the criteria in your area in terms of income and/or maximum sales price, you should pursue any first time homebuyer programs offered in your area.  These programs sometimes can offer downpayment assistance and may also be at a slightly lower rate than the norm. The credit score should be sufficient for any first time homebuyers payment.

I don't know what kind of price range of home you are looking for, but if you are short on funds you can ask the seller to help contribute anywhere from 3% - 6% toward your closing costs depending on the loan program you end up with.

June 18 , 2004
Loans > Home Loan
We were told of a interest only loan for 4% and 20 years. Interest in a mandatory payment and principal payment is left up the loan applicant to pay as little or as much as one can afford. What is this called and what are the downsides to this type loan. - David

DIANE SAYS: You may be referring to a type of mortgage that is an ARM loan that allows for different payment options.

Some folks call these cash flow ARMs because they offer a low interest payment option freeing up more of your earnings to use for other things.  If this savings is used wisely for paying off other debts and/or investing in funds that can create a higher rate of return than the interest rate being charged, it can be a good option.

Some things you should determine on this type of loan is how often the interest rate can change, how high the interest rate can go, and if there is potential for negative amortization (where the principal balance can actually go UP).  If there is negative amortization potential, find out if there is a maximum it can go to.  Many programs like this won't allow the principal balance to increase by more than 10% and will start increasing the minimum payment required when this maximum is reached.

The main downside to this type of mortgage is the potential for negative amortization and the lack of money management.  Some folks may take this mortgage option to get into a higher priced home and find they just barely are able to make the minimum payment required and therefore don't save any extra money to be used for other debts or investments. Eventually when the payment goes up, which it generally does, they find they are having financial hardship.

June 10 , 2004
Loans > Home Equity
I bought a home last year and currently have around $20,000 in equity and now I would like to borrow around $6,000 for some home improvements. Should I look for a second mortgage or an equity line of credit? I am expecting a moderate amount of money from a previous employer in 2006 so a interest only loan looks like a good option to keep the payments low. I will be able to pay off the loan in full in 2 years. - Greg

DIANE SAYS: In your situation an equity line of credit would be a good way to go. This way you can use as much or as little of the line as you'd like and pay it down to $ 0 in a few years when you can.  It wouldn't hurt to leave the line open at that time either so that if it is needed, you can draw from it in the future.  Many banks offer low or no cost equity line of credit, whereas a full-fledged fixed rate second mortgage may have higher closing costs and no chance of the payment going down if you make large payments on it.

June 5 , 2004
Loans > Home Refinance
I currently have a 30yr fixed rate mortgage at 5.75% which I just refinanced a yr ago. My spouse's income is expected to decrease in the next year but we probably could still make our current mortgage payment but finances would be tight. My thought is to refinance into a 5/1 ARM interest only loan. We expect to stay in the house for the next 10+ years. My thought was to use the savings to pay off a car loan in the next year and then use the savings to pay down the principal and refinance again into a 20 yr fixed mortgage. Does this seem to be a good plan to give up my current low fixed rate and take the risk of rates increasing in the next five years? - Rose

DIANE SAYS: If it will be difficult to make ends meet there isn't anything wrong with refinancing to an ARM type of loan, especially if you do use the difference in the payments toward paying other debts. Just be sure to find out whether there is any possibility for negative amortization on the loan just so you are aware if that potential exists.  Negative amortization is basically when your principal balance of your mortgage goes up due to the rise in the actual amount of interest that is accruing on your loan but you are making the minimum payments which is less.  This difference in the interest gets tacked on to the loan balance and therefore your payoff may be higher when you are ready to refinance.

You do risk the chance that the rates are higher at the end of five years but you do have the option of keeping your loan if the rates are not that great, or refinancing to another lower interest rate ARM.