“Barry” asks:
I need to refi my home because of divorce. The home is appraised at $255K, and the current payoff is $120K. I also have substantial credit card debt that I want to pay off (~$14K). My question is what is the effect of using your “Refi - Debt Consolidation” vs. the “Refi - Cash Out”? Thanks for your help and for this superb site.
Thanks for the question and compliment!
When you choose a refinance for debt consolidation, the lender will usually take into account the debt you want to pay off when qualifying you (ignoring the debt you are paying off in your qualifying ratios) and actually write the checks to your lenders to pay off that debt.
When it comes to cash out, you are not specifying what you are using that cash for, and lenders may limit the amount of cash out permitted.
In your case, your LTV (loan to value — or amount of loan compared to the value of the home) is so low, you shouldn’t have any trouble consolidating your credit card debt. Choose a Refinance Debt Consolidation, then talk with the lender you are matched with if you also want to take some additional money out to refinance.
A couple of other things — make sure you continue to make at least your minimum payments on your debts until the funds from your closing have been credited to your credit card accounts. I’ve seen consumers hold off on making payments, and then find late marks on their credit when the payments from the loan proceeds didn’t make it to creditors on time.
Also, it is a good idea to monitor your credit reports and scores for a while during and after your divorce, since that’s when a significant number of credit report mistakes and problems occur.
“Caryn” asks:
My question is this, the site is requesting my credit scores from the three credit bureaus. But what about my fiance’s credit scores? I’m sure those are important if we are buying a house together? Thanks!
Hopefully you have checked both your credit scores. Whichever one of you has the strongest income will likely be considered the borrower, and the other person will be the co-borrower. Keep in mind that if one of you has strong scores and enough income to get the loan alone, you do not need both apply. (You can still hold title together, and there will be paperwork for the other person to sign.)
“Marla” asks: I have $20,000 and my new husband has $9,000 in credit card debt. Should I pay off his credit card and only have 11,000 for a down payment on a house, or should I use the entire $20,000 for the down payment?
Great question! There are several things to look at here.
My first question would be: who will be getting the mortgage? Just because you are married, doesn’t mean you both have to be on the loan. Whether you decide to get a loan together, or in the name of just one of you, depends on your income, credit scores and qualifications. If your credit scores are significantly higher than your hubbie’s, and your income alone is sufficient for the loan, then you could get the loan using your down payment and keep him off the application. (In most cases, even if one of you gets the loan, however, the home title will have to be held jointly because of state property laws.)
However, let’s assume you will get the loan together. You need to get both of your three bureau credit scores to make sure they are accurate, and to see who has the higher credit scores. Usually the credit scores of the person with the highest income will be used as the primary borrower, and the other person will be the co-borrower. If your credit scores are significantly different, you may have some work to do on his (or your) credit before you buy.
The other thing to look at is what a different down payment will do to your loan options and rates. Loan programs and rates often change quite a bit when you go above certain thresholds such as borrowing more than 80% of the home’s value, 90%, or 95%. If you have enough money for a 20% down payment, for example, and your credit scores and income qualify you for a good loan, you may want to put the money into the house and then tackle the debt.
Keep in mind that the lender will be looking primarily at the “debt ratio” not your husband’s overall level of debt. To figure your debt ratio, it will take into account the required monthly payments on your mortgage (including principal, interest taxes and insurance) and other required debt payments. For your husband’s credit cards, that may mean only looking at a required payment of $200 or so, depending on the minimum payments reported for his credit card debt on his credit reports. If you don’t have much other debt (car loans, student loans, etc.) then that minimum payment may have little impact on the debt ratio or the loan.
I would recommend you run a search and then ask your lender to help you evaluate these various scenarios to find which one gets you the right loan. Remember, once you are registered, you can change your search criteria as well. So you can run the loan with the $20,000 down payment and then with a smaller one. (For the most accurate results, though, you should both have your 3-bureau FICO scores.)
Finally, the biggest challenge for you two may not be choosing a loan but marrying your different styles of handling money. It sounds like perhaps you are a saver and he’s a spender. Not only do opposites attract (as I can say from personal experience!) but, money clashes can also push apart a couple just as easily. A great book for the two of you to read together would be Olivia Mellan’s book, Money Harmony.
Good luck on your home purchase and the best to both of you!
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