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Rescue me, Mortgage Advice Needed

Question: Hi All, after reading through a few postings here I thought someone might be able to give me some simple and practical financial advice. We are looking at a few different re-financing and selling options for our home but our credit situation is really creating some limitations for us. Here is a quick thumbnail of what seems to be primary factors in the loan qualification process.

** Total debt without mortgage is $34,500. ** Mortgage balance is approximately $300,000 ** Home value is $370,000 ** Monthly Net Income is $5800 ** Monthly Mortgage = 5 yr ARM = $2515, ** Monthly Bills = $3 x C.Card, 1 x C. Cards, 1 x Car Pymt ** Monthly Budget including above = $5,500 ** Icky FICO scores are T.Union = 552 Exper.= 549 Equifax = 533

** Discover – Balance= $11k Monthly= $225 ** B of A – Balance= $8k Monthly= $200 ** Bank One Balance= $2K Monthly= $50 ** AMEX Balance= $10K Monthly= $150 ** Car Loan Balance= $17,500 Monthly= $477

We love the house we have now but after 5 years of mis-managing our money we have painted ourselves into a corner. Although we have shown a tremendous amount of focus and discipline to pay off debt and lower our month to month bills in the past year we are still under water. We are both college grads, my husband is in technology and has done well but after 3 years with his company his division was eliminated and he was laid off this past January. I am a stay at home mom and he has taken a job opportunity with a base salary of $80K. He has some large projects closing in 4-6 months but since he is starting over again additional income from commissions will take some time. I believe the past 3 years his W2’s show approx $160K, $220K,$170K.

So we are trying to lower our monthly bills/budget from $5,500 to around $3K and are not sure what options are available (given the above) and which one make the most sense. The timing is critical since we are getting behind more and more each month. I would love some simple advice and ideas on how to get us out of deficit spending during the next 12 months. This should be enough time for our income to grow and get us to a single mortgage payment and no other debt.

Option 1 : Refinance Existing Mortgage

Can we refinance our existing $300,000 5/1 ARM with Flagstar by using the $70K of equity as a down payment? We went through a refi process about 3 months ago with Lending Connection and it was very high in fees and interest which made it difficult to calculate the benefit. Our existing mortgage payment is $2515.

Option 2 : Home Equity Loan of $31,000 to payoff all bills (leaving just a mortgage, equity payment & car payment)

** Discover – Balance= $11k Monthly= $225 ** B of A – Balance= $8k Monthly= $200 ** Bank One Balance= $2K Monthly= $50 ** AMEX Balance= $10K Monthly= $100 **** Totals = $31K and $525

Option 2a : Include Car Loan with above (leaving just mortgage & equity)

** Car Loan Balance= $17,500 Monthly= $477

Option 3 : Sell Home By Owner and purchase less expensive house ($225K is minimum), but at what interest rate???

** If we sell by owner at $360,000 we would have approximately $50K cash in hand ** Assuming approx. $10K in loan fees for new house, how do use the remaining $40k. Required down payment vs. payoff debt? ** Do we risk not being able to qualify for a new and smaller mortgage after sales due to credit or have equal or higher payment because of high interest rate? ** Selling FSBO takes much longer, we don’t have much time without more lates on our credit.

Option 4 : Sell Home With Realtor ** If we sell with a realtor at $370,000, pay 2% for listing agent and 3% buyers agent fees would equal about $18,500 ** After all fees we would have approximately $50K in cash ** Same questions as above, weighing the loan qualification, down payment requires, paying off debt to lower total monthly debt.

BOTTOM LINE. DO WE GAIN ANYTHING BY SELLING AND PAYING RELATED FEES, TAKING ON HIGHER INTEREST RATE, OR SHOULD WE JUST SIT TIGHT IN THE HOUSE AND GET THROUGH THIS TOUGH PERIOD AND DEAL WITH MORE DAMAGE TO OUR CREDIT????

If you don’t mind copying any responces to my email address it would be great! I really do appreciate any advice you may have.

Thanks

Answer: The car has to go,then work on the bank one because it is the lowest and easiest to get rid of. The other cards have higher amounts but near equal so I would work on the highest one first, while still paying the others. With the car gone, you should be able to avoid moving backwards, and after the 2k balance is paid, then you should be able to function normally. Do not close the accounts you just paid off as someone else suggested. Closing credit you have paid off will lower your credit score, but keeping the paid off cards open, will raise it. You can cut up the cards, just don’t close the account.

After this time, you should be able to think what is best for your situation. Interest rates will be going up, and if it were me, I would refi after you got to this point, but not before. I would use the refi amount to pay off the other debt. Most likely the home interest is less than the other interest, and you can write it off, whereas the other interest you can not. I would put the refi in a fixed mortr instead of an arm due to the fact that rates will be going up, and are about at the bottom now.

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