Part 2 -Refinancing Our Home While Enrolled in a Debt Consolidation Program

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Part 2 -Refinancing Our Home While Enrolled in a Debt Consolidation Program

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A few weeks ago, I told you that my wife and I were working through the process of refinancing our home.  We had a few extra issues to overcome due to being enrolled in a debt consolidation plan, as well as still having a fairly high monthly debt to income ratio. 

The good news was our mortgage banker was upbeat and had nothing but positive things to say about our chances of being approved.

At her request, we went ahead and spent $441 to have our home appraised. 

The appraisal came in roughly where we thought it would, and we were full steam ahead.  Our banker then dealt us a blow by telling us that our ability to move forward depended upon underwriting approving our mortgage application.  If we were approved, the appraisal fee would be returned at closing.

If we were not approved, they would keep our $441.

This had us running (not walking) to a second bank.  We were hoping to hear that they could use the same appraisal that we had paid for and apply for a mortgage through the second bank in parallel.  Through our discussions with the second bank we submitted an application, however we were not approved.   We did, however, learn three very important things from bank #2:

1.) Different banks may offer different mortgage options. Bank #2 presented us with 2 completely different potential loan options from bank #1.

2.) Even though we had paid for the appraisal, it was actually owned by bank #1, and we could not use it without them releasing it. Which they would likely not be inclined to do. Even if they did, the second bank would have to accept it, which they indicated they would not.

3.) Our mortgage banker from bank #1 had not handled our situation correctly. The standard way to handle a mortgage application is to submit it to underwriting FIRST. The mortgage can be approved contingent upon the appraisal. When things are done correctly, applicants spend NO money until they are approved for a mortgage and choose to move forward.

We waited for word from bank #1, answering the occasional question, but not holding out much hope after what we had learned. 

Happily, on January 7th we received a phone call from our banker telling us we had been approved. 

We closed on our new mortgage three days later, and our $441 was returned to us.

Buying or refinancing a home isn't something a person does very often, but we learned several very important lessons should we ever go through it again:

1.) Be patient: Our mortgage banker told us she didn't mess around and the process would move quickly. The time from our first meeting until the date of closing was ten weeks. I would not call that moving quickly.

2.) Talk to multiple banks: Banks can and will offer slightly different loan options. By talking to multiple banks, you can pick which one works best for your situation/

3.) Do NOT spend any money until you are approved. Find out how each bank works before investing any time in the process with them. There is no reason to shell out a single cent until you have been approved.

Refinancing our mortgage was another very important goal in getting our finances in the best possible shape for the future.  Being enrolled in a debt consolidation program can be very difficult in many different ways, but it may not put a mortgage refinance, or the goal of home ownership out of reach.

Are you enrolled in a debt consolidation program?  Do you have a mortgage success story to share?

Related Links:

Can You Refinance Your Home When Enrolled in a Debt Consolidation Program?

Interest: the Untold Story 

Are You Ready to do What it Takes to Get Out of Debt?

Travis Pizel, debt management plan customer with leading provider of debt relief, CareOne Services, Inc. Travis Pizel 

Travis is a contributing writer for the A Straight Talk on Debt blog. He is also a very active member of the CareOne community forums. Travis is currently enrolled in a CareOne Debt Management Plan (DMP). Travis candidly shares his personal journey to pay off his debt and the tips he's learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family in Minnesota. You can also read more from Travis on the Enemy of Debt blog, where he is a featured blogger. Compensated Blogger for CareOne Debt Relief Services.

To connect with Travis on Google+ click the

You can follow Travis on Twitter @DebtChronicles

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  • Other than the $441 dollars that you had to shell out upfront (I understand that's not typical), what about the refinancing process itself - did you have to pay for any closing fees or anything like that?  Was your credit score a factor in determining whether or not you would be approved?  Was the process worth it - did you end up saving a lot on your monthly mortgage bill?  We are currently upside down in our mortgage by more than half.  I am hoping the government approves the loan forgiveness program again as we'd love to have a lot of the mortgage forgiven if at all possible, but refinancing may be our only option if not.  Just curious...

    ~ Charlene

  • Great questions, charleneblondie.  Some of those questions are answered in the first part to this story at the following link (another blog post here in the CareOne community):

    community.careonecredit.com/.../can-you-refinance-your-home-when-enrolled-in-a-debt-consolidation-program.aspx

    I'll also answer them here.  The bank pulled one of those "car salesman" sort of things on us.  They told us that we could refinance with zero closing costs....of course what that meant is that we would refinance at a slightly higher interest rate.  So, we could either take zero closing costs and a higher interest rate, or closing costs and a lower interest rate.  We took choice B (closing costs + lower interest rate) because when we did the math it would cost us slightly less in over all interest over the term of our loan than we would save with having no closing costs.

    We did, however, roll the closing costs into our refinance as one of our needs to make this work was to be able to come to the table with zero funds at closing (with the DMP payment + "life" we didn't have the ability to save up the thousands of dollars for closing costs).

    As mentioned in the post linked to above, our credit scores did affect us a little bit.  Our scores were actually quite good considering we have been in a debt relief program for 4 and a half years.  They use your "middle score" of the three credit reporting bureaus - my wife's was over 730, mine was 704 or something like that.  To get the best interest rate (at least from our bank), it needed to be above 710.  So, we got "dinged" by 1/8th a percentage point.

    For us the process was absolutely worth it.  We aren't saving any money on our mortgage each month....in fact our payment went up about $180 a month.  So, right now you're asking yourself "How in the world was it worth it?"  The answer is, our mortgage was a mess.  We had a first and a second mortgage.  The first mortgage was an adjustable rate mortgage (ARM), and our second mortgage was an interest only line of credit.  Signs point to interest rates beginning to rise on mortgages, which means our ARM would likely adjust upward as time went on.  Our interest only line of credit had a 10 year term, and as of this May would be converted also into an ARM. We wanted to lock into a single, fixed rate loan before interest rates rose too much.  

    Now have an affordable mortgage that is locked in, and a fixed part of our budget for the entire term of the loan.   That was our goal, and we accomplished it!!!

    hope this helps, let me know if you have any additional questions about the process we went through!

  • Hello, thanks for this information. When you use debt consolidation loan, you merely arranged your debts so you have a more simple repayment plan. You have right to change your strategy in the middle of the payment term if you feel like it will be most beneficial to you.

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