Q: I bought my first home in Woodstock, GA back in June, 2002. My credit score was marginal (around 600), and I was an independent contractor taking every deduction under the sun, so my tax returns looked like I wasn’t making any money.
I was only able to qualify for a first mortgage of $121,800 at 7.25 percent, and a second mortgage of $29,901 at 12.55 percent. Both of these loans carry a 5 percent prepayment penalty for the first two years.
But things have changed. Although I’m still earning around $50,000, my credit is now in the mi-600s. My wife is from Brazil and we are trying to get her citizenship approved.
In order to get out from under these loans, we are thinking about either selling the home or refinancing. Shall we wait until June, 2004, when the prepayment penalties expire? Or, could we get such a good deal that it would be worth paying the penalty?
I don’t know what to do, but don’t want to miss the lowest rates ever. Can you help?
A: Don’t worry low interest rates aren’t going anywhere, or at least, rates will still be a whole lot lower than what you’re paying next June.
But you should talk to a couple of reputable lenders about your situation and show them a copy of your improved credit history (you can purchase your credit history and credit score for $12.95 at myFICO.com.
This will allow the lenders to walk you through a variety of financing scenarios, and perhaps even advise you on how to raise your score further. (I’d like to see it above 680.) Sitting down with these lenders will help you determine whether you are better off staying the course until June (which isn’t that far away) or refinance now and take the hit.
As for your bride, under a new federal initiative, lenders will begin giving mortgages to people who do not have social security numbers. If she has a full-time job and earns income that could be counted toward paying the mortgage, so much the better.
Finally, your home may have appreciated in value and it may now be possible for you to use the equity to refinance out of both mortgages and have a regular 80 percent loan. So, it’s in your best interest to sit down with very reputable lender to see what can be done to alleviate your current situation.
Unless you feel like you’re going to get a whole lot of cash out of your home, I’d keep it, refinance and live cheap until you’ve got your financial life in order.
Q: I would like to know who a homeowner can talk to about a problem with his or her mortgage company.
My mortgage company will not give me credit for bringing my payments up to date and keep changing the total that is due. For example, I was two months behind in my payments, but I paid that plus the interest that the mortgage company said I owed.
Every time I get a bill, the mortgage company says I owe another 3 months of payments, when I’ve brought the mortgage current. Every time I send more money I’m told I’m making payments in arrears.
What can I do? The lender does not seem to want me to be current.
A: It sounds like your mortgage company is a predatory lender. Predatory lenders will often refuse to bring your account back up to date, even if you pay more than is owed. Instead, they tell you that you’re even later, and money just disappears instead of getting credited to your account.
Rather than continuing to pay them more and more, I suggest you call the attorney general in your state and ask them to launch an investigation into this lender. You should also contact the state agency that regulates mortgage lenders in your state and file a complaint. Talk to the agency about what has happened and ask if you are the victim of a predatory lender.
Then, let the lender know you have contacted the proper authorities about the case and will hire an attorney if the situation is not corrected immediately.
After everything is cleared up, you should try to find another lender and refinance your loan.
Please do this sooner rather than later. Victims of predatory lenders will often lose their home equity in these cases, and I’d hate to see that happen to you.
Thanks for writing and good luck.
Jan. 19, 2009.