Do no-equity mortgages exist?

September 16, 2011 1:28 PM

Is there such a thing as a no-equity second mortgage?

(Anon because of personal finance information)

We're in a deep debt hole and have explored all our options. We're trying to avoid the big BK at all costs. Own our house with a good 5% rate and our payment is easily affordable by itself. But, there is no equity here to tap into. We owe what the house is worth after being here for about seven years. I have pretty good credit, but my wife's has taken a nose dive.

My wife started thinking that we could get a second mortgage to pay off all our debt (all together about $35K). I was reading about no-equity second mortgages, but couldn't really find any good info about them. I know they aren't ideal and if times were different, we'd not be pursuing this. But long term unemployment, big medical emergencies and a big tax bill has formed the perfect storm of desperation. We've sold everything there is to sell and cut our expenses to the bone.

(tl;dr version)
Can you recommend a good company to get a no-equity second mortgage from? Or ones we should stay away from?

Thank you.

posted by anonymous to work & money (5 answers total)

Check your local credit unions. If anyone is going to make you this loan--and I can't for the life of me think that anyone will--it'll be them.

But listen: you can't borrow your way out of debt. Say you can get this loan. What then? This will either wind up being just as hard to service as your existing debt or wind up costing you way more in the long run.

It's time to seriously think about bankruptcy. Your home and certain other assets can be protected in this process, so it's not like you have to go live in a cardboard box if you file.
posted by valkyryn at 1:31 PM on September 16, 2011

I'm no expert, but if you have no equity, then there's nothing to borrow against.

But why are you asking this question here? If you are really facing bankruptcy and have "explored all our options," you should have already sought credit counseling from a reputable agency. However, I would think that if you have a counselor, you would have asked him this question, so perhaps you haven't. Start here.
posted by Mr.Know-it-some at 1:44 PM on September 16, 2011 [1 favorite]

Back before the crash, it was pretty damn easy to get a 2nd mortgage for 125% of the value of your home. It's probably damn near impossible to get that kind of loan today. The assumption that your property will quickly appreciate itself back to a positive loan to value ratio has been rendered null and void by the real estate crash.
posted by COD at 1:50 PM on September 16, 2011

Talk to a bk lawyer about a Chapter 13 filing, where you would get to keep your house.
posted by Aizkolari at 12:29 PM on September 17, 2011

The mortage market right now is absolutely dominated by the federal government, and the investors who were driving the market for wacky, risky mortages are pretty much gone. You can refinance under a federally sponsored program if you're 25% underwater (no cash out), but there is no program I know of that will let you add to your indebtedness.

As valkyrn says, how are you planning to borrow your way out of debt? If you have a serious cash flow problem that will be gone in a year, maybe it would help to get that 35K down from 29.99% to 9%, but for most people that's not the case. Take in a roommate or move in with family, get second jobs, or see a credit counselor about bankruptcy.
posted by wnissen at 1:20 PM on September 17, 2011