Real Estate and Home Mortgages - Refinance now???

I bought a home in Nov of 2006 and I entered into an 2 year ARM (big mistake). My interest rates are pretty high (8.9 on 1st and 9.1 on second). I was so eager to get a home and now I realized that i shoudl have waited. Anyway the damage is done. I have looked into refinancing the home but I haven't been there a year yet and the houses in my area are selling less now than what I paid. I also can't remember what it was appraised for when I bought it so I don't know how much it would have appreciated or depreciated by. i have done some painting and had laminate floors done so maybe it ahs appreciate a little. My credit score is a little better now but still not A-1. Should I wait until next year to refi or do it ASAP? I need all the advice I can get.

Ouch! Well; what's done is done. Let's look at where you are now.

High interest rates, and you say that they're ARMs!

The rate is fixed for the first 2 years, so they won't escalate until next November. I'm just guessing on this.

Since I'm pretty sure you didn't have an attorney review all documents you probably don't know if there is any prepayment penalty on either loan. You need to find that out, but before you pay an attorney check with a Realtor and find out the approximate current value of the house.

Assuming that the house is worth at least what you paid, and you want to refinance in the next year, trust me, rates are going to go down again, and stay down through the November '08 election. I would do the following:

Cut all expenses to the bone, cable, cell phone, meals out anything and everything.

Get a part time job, or two or three and start getting some extra money coming in.

The combination of more coming in and less going out should improve your finances.

Go to Consumer Credit Counseling (CCC), do NOT go to any of the other credit "repair" or "counseling' companies. Find out realistically if they think you can get your credit score up in the next 10 months.

Following their advice you should be able to effect a $25K-$50K swing in your financial situation between now and next September.

I realize this is not easy, it will be painful. However, IMO there is no pain like paying 9% intererest in a 5%-6% market.

frank

Yeah I know I'm in some really deep stuff. There is a 2% prepayment penalty on both loans. Only one loan (the bigger one) is adjustable. Yes it will adjust in Novenber 08. That was really great advice. I will contact CCC ASAP. I think I might be heading in the right direction....I'm heading to a meeting tonight to start a part time job. I wish I new then what I know now about buying a home. I was so excited about my first real job after college and jump in over my head.

Thanks alot. If you think of anything else that might help, please post.

Check out (from the library) Dave Ramsey's book, "Total Money Makeover". I've actually never read it, but I hear his radio show a few hours or so per week and he preaches what I was taught growing up.

The job is a great start.

How long is the prepayment penalty in effect? A lot of time it's only for the first couple of years, but this one sounds like a bad loan all around.

In that case I'd slam every nickel onto the second.

What is the adjustable rate tied to? LIBOR? Fed Rate?

Again, I don't see rates going up prior to the US election.

frank

I would never tell anyone to to through a credit counseling service. If you get your own credit report and familiarize yourself with it you will see what needs to be done. I've put a budget up on a sticky in this forum that can help you figure out what to do. Please read that for some advice in that area.

The prepayment penalty is going to be steep, probably 4% in the 2nd year of the loan, possibly 6 months interest. So, plan ahead. Straighten out any credit issues. Find out WHY you had to go with this loan. I have also put a sticky in the forum about the FHA Secure program in case you have this thing and get behind after the adjustment. You have a safety net, but you have to be prepared. DO NOT get behind on the mortgage before the adjustment (not at all, preferably), and keep everything else up to date for the next year as well. If you have charge off's, try to get them paid off in a SINGLE payment, not payment plans. You do not want to refresh any delinquent debts or they will affect you more negatively than they do now. To refi, you may not have to have all charge off's paid off if they are determined by the underwriter to not be a threat to the mortgage/property. That means that if they are over 2 years inactive, they shouldn't be seen as a threat since they are uncollectable as long as you don't touch them (if there is no judgment). So, do not make a payment starting over the clock unless it's to pay it off entirely. Try to settle any charge off's for about 40% of balance. Get it in writing, expect them NOT to update your credit report. Be able to prove that you paid this off with a copy of a check and settlement offer.

If you have specific questions about your situation, feel free to post. Use this time to get prepared to refi. You should be able to refi onto a good loan with some prep time.