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Ok, in May of 2007 I bought my first house. Because we made too much $$ they said we couldn't do FHA. We ended up getting talked into an 80/20 with 80% being a FR conventional loan for $150k at I believe it was 6.25% (it might be a smidge lower) and about $38k in an ARM HELOC at prime plus one. I don't remember the cap, but when I calculated it, it was definintely affordable for us- the cap doesn't scare me beacuse we wouldn't have purchased the house if we couldn't afford it. We actually bought an extremely affordable house (4bed, 2bath, 2000 sq ft 1acre for $188k) and we were approved for somewhere around $400k. We make decent money, our jobs are stable and we have absolutely no debt. My question is I have heard that I cannot refi my HELOC into a fixed loan. I would either just want to lock in the rate on the HELOC (best bet since rate is so low now) or add the $37k to the 30yr FR mortgage we already have. I have heard 2 things: 1) If we don't have $37k in equity in the house then we can't do it, and 2) you can't convert a HELOC at all -- though I have to read my rider, I haven't done so yet, just thought of this today when rates dropped. Does anyone know the truth? Also, how much would it cost to refi something like this. I figured it would be approximately as much as a closing, perhaps slightly less? Oh yeah and 1 more thing that may factor in. While there is nothing wrong with our house we do want to move closer to work (an hours drive away). As soon as the housing market bounces back, we want to put our house on the market and I'm hoping to at least get $209k for it. That may not be for 2 years or so, but I'm just wondering if it would even be worth it to bother to re-fi if we aren't planning on staying in the house much longer. We also have a solid offer from the people who sold us the house to buy it back from us at the price we paid for it (I told them to take a flying leap if they think I'm that stupid- I'm not, and I'd rather sit on the house than take a loss, thanks.) Oh and I'm guessing, but I have been told by a couple realtors that I know, that the house is worth about $199k now. (of course that is subjective because if no one is buying then it isn't worth anything really.)
Oh this is all good news, thanks for the answers. I am going to call around next week after I look over my documents. I am 99% sure we are not upside down on the loan for the simple fact that in Vermont we aren't facing the same real estate crisis as most other places. Market is still good here. On top of that I have been watching houses in the area sell and I am pretty sure we'd get more for our house than we paid. Also, we bought it from some desparate people who got transferred, I think the house was undervalued when we bought. Our FICO scores are excellent. Mine is around 750 and BF is around 800. We aren't in trouble with paying; we could pay three times our mortgage and still be fine, that is why we got a cheaper house. I just want to lock in the rate because I know they are going back up (they can't go any further down!!!). All I am trying to figure out is how to lock in my rate. I always pay much much more than the minimum anyway. :) Thanks again, you've all really helped!
Unless your loan docs have some special deal, you can't convert one thing to another. You can refinance the HELOC into a regular 2nd mtg or you can refinance the whole works into one loan. But there are a few things to consider. The HELOC may be considered a cash-out loan when you go to refinance it. The cash-out rate will most likely be higher than the purchase money rate. So, if you refinance both loans into one, you'll probably have a higher rate than you do now. The lender's rate structure will determine this. The better option will most likely be refinancing the HELOC into a HELOAN, if they will allow you to do that without taking out additional cash. What I would do in your position is call a few lenders and ask them how they could handle this. You don't want them to pull credit reports willy nilly, but until they do pull one, they can only tell you the best rate. You may not qualify for that rate, but without a report, they won't be able to tell you what you will get. The other thing is the value. The property's value may be less than when you purchased the home. That, your credit score, your debt to income ratio will all be part of the loan decision, so you may not be able to do it at all.
Yes you can as this was all purchase money and as long as you have enough equity in the home you can combine both mortgages into 1 if you so wish. Any professional in the business can get this done quickly. Cost could be as high as 4% of total loan with all fees included. Now if you are selling in a couple of years you may want to wait this out as you will not recover the cost involved except that the HELOC works like a credit card on your home so if I were you I would throw as much as I could towards that over the next couple of years I am a mortgage banker in Vermont & KY
Since you didn't put anything down on the purchase price, you are probably upside down on the value. Maybe only a little, but enough to disqualify you from refinancing. Check on this fact first. If you are not in a financial bind, the banks and government don't really have you in mind. You are with me and and most homeowners - left out of the bail-out. But you should call your lender and find out what incentives they may have to keep your excellent payment record on their books. It's almost a catch 22. There is help for you if you are behind, but to get help you need to be behind. If you fall behind you can get help, but your credit file will suffer, and then nobody wants to do business with you. Sucks, doesn't it? Seems like the people that are getting the most out of this 'bail-out' are the ones who acted most irresponsibly during the boom. You may have to just grin and bear it like the rest of us. And remember, your vote matters.
The only one that knows the answer to this is your mortgage holder. Call them and ask if you can convert your ARM to a FR. As for a Refi, you will have to see what it cost you before, and compare that with how much interest you would save in the amount of time you plan on staying in the house. A Refi may cost you more than you would save.