Opinions asked

[GasBrommer]

Hi,

We have a current situation where I'd like some advice. The current value of the house is $120,000. The mortgage value is $100,000 with owner A and B. A really wants to get out of the loan (primary borrower) since he just did this as a favor 3 years ago since owner B didn't have a good enough credit, now this is better and owner B would like to refinance with owner C. Would it be best to to refinance this and do a quitclaim deed from owner A or would it be better to to re-buy the house with owner C as the primary owner and lock in a better interest rate?

[Vincent E]

I would said Refinance is better than to re-buy the house with owner C. Here is the options below: Refinance vs Re-buy (Purchase).
1) Owner B have to refinance to remove owner A from the loan and TD. If owner B want to add owner C in the loan than Owner B can have owner C to be co-borrower.
2) If re-buy the house with owner C than it will required a down payment and is more strict to qualify than option #1.

[LMASON]

my question is do you really need to refi? What is your goal? Because if it is simply to get A off the deed, then quitclaim. If it is to relieve A of the financial obligation, then yes refi is in order. But I wouldn't do the rebuy, it is too much involved with qualifing and down payment, plus I'm sure the property may be upside down unless you never refinanced and still have equity.

[GasBrommer]

The problem is that A doesn't live in the house anymore and wants to get out of the financial obligation, since he wants to buy another house for his own (primary residence). There is indeed no equity in the house and it's upside down so I don't really see a way out.

[GasBrommer]

I'm trying to explain to him that there is no way to do it with the current market situation (he won't foreclose either). What I suggested is sign a rental document to the people actually living in the house so that when he goes to look for his own house, he can show them that, yes he has another mortgage but he uses it for investment purposes and doesn't have any loss since the people in the house pay him exactly the same amount as the mortgage.

He says it still hurt his credit (since he misses 2 payment for 30 days in 2006). However, I think, but could be wrong, that if all the payments are made in time from now on it will only help his credit and won't take it down. Am I correct in that?

[GasBrommer]

Also, say he gets off with a refinance, won't it still show as a closed account and will still show the missed payments in 2006 on his credit report for another few years and will take down his credit even more?

[LMASON]

I'm not sure what the rules are today, as you know everything changes daily in mortgage. But, last summer when I tried to qualify a borrower to buy another home so that he could rent his current home which he could no longer afford, he was told by each lender he would have to have 30% equity in his current residence and be able to cover both payments with his income. This person also had 20% down. So I don't know what kind of rules and regulations the investors have made since then, but do some research.

[LMASON]

his credit is going to show the late payment regardless. And six months after an account has been closed they can take it off of your credit which will drop your score as well. But it all depends on the company reporting.

[GasBrommer]

Okay, thanks. Any ideas on where to start the research? His income is pretty high so he shouldn't have a problem doing this. But I'll do some research on the regulations.

As for the credit score, say he takes out the mortgage payment after 6 months (closed), will it take down his credit score? How does this work, any more information would be greatly appreciated.

[LMASON]

Well as far as investor regulations, you can go to each lender's website's and some of them will let you look at their program or underwriter guidelines. You can also use some information off their rate sheets, which show guidelines for each program. The credit situation, as I said depends on the company reporting. I had a borrower go from a 740 to no score at all 3 weeks later when I got ready to push her loan through to the lender. I was upset and called the credit bureau's and all three said it had been six months since all of her accounts had been closed and they erase them. I was shocked and had never seen or heard of such a thing, but it happened. So when it comes to credit, you would be surprised what stays and what goes.

[GasBrommer]

Great, one last thing. I know it depends on the credit company reporting but I just want to make sure that it's untrue that someone with a mortgage, always paid on time has a lower credit score than someone without a mortgage?