Refinancing a house with a junior mortgage attached
October 6, 2011 8:29 AM Subscribe
Home Refinancing Quandary: I would very much like to refinance our house, but we've been hand-cuffed by a junior mortgage on the property and no broker seems to understand how they work (or I just don't get the rules). Is there a way around this?
We currently "own" a home that appraised at $205,000 at the bottom of the market when we started to look into refinancing. We owe about $185,000. I would love to refinance as it would cut our rate in about half and lock it in (the mortgage is a 7 year ARM that converts in about 14 months, which should be just enough time for rates to skyrocket).
The complication: we started a business last year with some friends and took out a note for $80,000. While we all (3 parties) pledged our houses against the note, obviously we're all liable for the entire amount as well. Because of this additional amount, every refinancing attempt has fallen flat. Given this is a junior mortgage (meaning it sits behind the main mortgage in any bankruptcy case) and the note holder is willing to provide a suboridination agreement, I don't see why the $80,000 should be factored into the refinancing.
Is there a way around this or do those lunk-headed mortgage brokers have a point?
We currently "own" a home that appraised at $205,000 at the bottom of the market when we started to look into refinancing. We owe about $185,000. I would love to refinance as it would cut our rate in about half and lock it in (the mortgage is a 7 year ARM that converts in about 14 months, which should be just enough time for rates to skyrocket).
The complication: we started a business last year with some friends and took out a note for $80,000. While we all (3 parties) pledged our houses against the note, obviously we're all liable for the entire amount as well. Because of this additional amount, every refinancing attempt has fallen flat. Given this is a junior mortgage (meaning it sits behind the main mortgage in any bankruptcy case) and the note holder is willing to provide a suboridination agreement, I don't see why the $80,000 should be factored into the refinancing.
Is there a way around this or do those lunk-headed mortgage brokers have a point?
Its still a factor in the same way that credit card debt is still a factor. Its a significant debt that could possibly affect your ability to pay.
posted by Lame_username at 8:43 AM on October 6, 2011
posted by Lame_username at 8:43 AM on October 6, 2011
See if your current mortgage bank offers a refi option. Mine is with Chase, and they have a super easy refi program. You might not get the greatest rate in the world, but a half a point is worth the reduced effort. I would think that if anyone is going to be amenable to refinancing the loan for you, it will be your current mortgage bank who you have a history with. And who probably has an interest in making sure you stay with them for more than 14 more months.
(With mine, they allowed me to roll the closing costs into the loan, but 104% of the current balance was some kind of limit.)
My sense is that banks are willing to refinance older loans both for the above reasons, but also to get older, questionable loan-to-value data off the book. IE, maybe you bought the house 6 years ago for $350,000. On their books, they have a 185:350 loan to value. But they know this isn't correct anymore and adds uncertainty to their balance sheet. So by being cool with refinancing, they gain a more realistic loan to value to keep on hand.
posted by gjc at 8:53 AM on October 6, 2011
(With mine, they allowed me to roll the closing costs into the loan, but 104% of the current balance was some kind of limit.)
My sense is that banks are willing to refinance older loans both for the above reasons, but also to get older, questionable loan-to-value data off the book. IE, maybe you bought the house 6 years ago for $350,000. On their books, they have a 185:350 loan to value. But they know this isn't correct anymore and adds uncertainty to their balance sheet. So by being cool with refinancing, they gain a more realistic loan to value to keep on hand.
posted by gjc at 8:53 AM on October 6, 2011
You have quite an unusual situation. Its unlikely that a large mortgage producer is going to have much interest given the second lien situation (which actually isn't second lien, in that they could seize your home as security if you fail to fulfill the note, but don't file for bankruptcy). You are probably much better off with a small bank or credit union the retains their mortgage portfolio. You might have to pay a bit more but that is your best option, maybe only option.
This is of course before you consider issues like your DTI including the note (potentially the entire note btw depending on how its written) and the 90% LTV on your home, that is actually 100%+ if you include your share of the other note. In other words - this won't be easy, but assuming the DTI is ok I would think someone would write the mortgage.
posted by JPD at 9:57 AM on October 6, 2011
This is of course before you consider issues like your DTI including the note (potentially the entire note btw depending on how its written) and the 90% LTV on your home, that is actually 100%+ if you include your share of the other note. In other words - this won't be easy, but assuming the DTI is ok I would think someone would write the mortgage.
posted by JPD at 9:57 AM on October 6, 2011
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posted by rmd1023 at 8:43 AM on October 6, 2011