We purchased our home through two loans ($450K and $50K) with Countrywide in 2005 and the loans are now handled by B of A. The $50K loan is a variable interest rate home equity line of credit. The larger loan is a 10 year adjustable rate. We have never missed a payment, so it's my understanding we don't qualify for any government funded assistance through the new program.
We live in Southern California, and are under water by approximately $150K. Our current loans are under only my husband's name, since we married after he purchased the home. We are in the process, and have been pre-approved for a new home loan through B of A (again), with help of my in-laws co-signing. Our plan is to find the new house, complete the purchase, then either try to short sale or walk away from our current home and not worry about the credit hit.
In the last week, we have been reviewing our options with friends in similar situations. We have decided to explore our options to see if we can keep this current home as a rental. It does not make sense if our current payments stay the same (we would end up paying $1000/month out of pocket). If we can get a principal reduction and/or lower (fixed) interest rate, it might make sense.
One friend was able to get his interest rate reduced, and says there was no negative effect on his credit standing. Another friend who is a loan officer tells us that any modification (principal reduction or interest rate change) will negatively effect our loan for the new home.
Our reasoning for hardship is going from a two-income household to one, and having zero kids to now having two.
So, my questions:
Is the larger loan the only one we have negotiating power with since the other is an equity line of credit, or can you ask for flexibility with both?
How detailed do we need to be regarding backup for the hardship issues?
Should we wait until the new home is purchased and the new loan is finalized before even asking the question of whether we can do a loan modification on this current home, for fear of us losing our approval status for the new loan? Or could we at least ask for an interest rate reduction/fixed rate if it doesn't negatively affect our credit?
I've been told that having the home as your primary residence works in your favor regarding bank flexibility, so is it possible to go through all of the legwork of dealing with the banks now, see what (if anything) they offer, then wait to accept the deal until just after the new loan is finalized? Possibly get both done before all of the information crosses in the system (since both loans are with B of A)?
We are just starting this process, and trying to educate ourselves as best we can but don't want to make any moves that will create a greater future challenge than we are dealing with. Any advice offered is appreciated. Thanks very much.