Our daughter has a five-percent fixed-rate mortgage and would like to refinance. She and her husband have had a sharp reversal of fortune, paid a few days late several times and had a 2009 corporate bankruptcy with some bills still outstanding. They jointly make $63,000 a year and have credit scores in the mid 600s (him) and mid 700s (her). They also have $100,000 in equity, big credit card bills and little in savings. Their monthly payment is $1,800. How can they refinance at today’s rates?
Late payments aren’t the problem here – only payments that are late 30 days or more show up on credit reports.
The bigger problem is likely debt-to-income ratios – that is, how much debt their income can support within lender guidelines. Right now, 34 percent of your daughter's household income is used for housing costs – too high for many loan programs.
Your daughter and her husband must lower their debt level or raise their income. The quickest strategy is a period of strict budgeting and debt reduction.
Still, having late payments – and paying late fees – is a bad idea. It seems like the money is available, since you say the payments are being made and credit scores are within reason. Perhaps the household budget needs to be re-arranged to get on track. If the late fee is $90, then that's money better spent paying down bills.
Another option, since there is equity, is selling the house. That would end big monthly payments, especially if the family could move back in with Mom and Dad for a time. The money not paid for housing could be saved to bulk-up cash and build credit. First, however, contact an attorney to see if the bankruptcy creditors could get access to any sale profits.
As to mortgages, speak with a variety of lenders. See if your state participates in the federal Hardest Hit Fund program and check the plans offered under the federal government's Making Home Affordable programs.
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