OT--Any bankers out there?
 

As you might recall, I have some very serious problems with my home's foundation--long story, but I recently settled my lawsuit against the parties I felt were responsible. I got VERY little money, but I'd spent so much on legal fees already (close to half the cost of the actual cost of repair) that I couldn't see continuing to spend money on a case I might not win.

Anyway, the good news is I can now start putting the money I've been spending on lawyers toward paying for the repairs. I'd like to start before I have all the money, which means I will need a loan.

My mortgage is held by my bank (a very large, national bank). I'm thinking of going to them and saying, "Look, you have an interest in this property, too. What kind of deal can you give me in terms of interest rate so I can fix 'our' property?"

I have a terrific credit score, make a pretty high income, so I should automatically qualify for their best regular interest rate. Is there any possibility I could do better if I plead my case the right way? Any advice/suggestions?

I am not a banker but regularly borrow decent sized sums of money for my business. My advice is to go talk to your banker that holds the loan. Your out nothing to talk to them and you could easily get a nice suprise.

What about refinancing? How do current interest rates compare to your loan?

Refinancing isn't an option, because due to the damage, the house is worth far less than the loan. I got an appraisal as part of a property tax appeal, and the house is worth less than a third of what I paid for it.

I agree that there's nothing to lose by asking, was just wondering whether there were any ideas about whom to talk to, how to present it, etc.

I would go to a small local bank for something like this. I work w/banks all the time through insurance, and when it comes to "issues" it seems like they always perform much better!

Good luck!

I'm in banking although not in mortgage lending, but I'd say to start out with your personal banker, but also, shop around, talk to some other banks to see who may want to give you the best deal. It may also give your bank the incentive to give you a good deal if they know they have competition. With your qualifications, you should be able to get a competitive offer. Good luck!

Have a little experience with this......

Question: If the house is repaired what will be its value vs. balance of mortgage?

Well, the appraised value is about 62k, repairs are estimated to be between 60 and 80k, and current balance on first mortgage is 134k. (I also have about a 19k balance on a home equity loan.) What the market value would be with the repairs I have no idea. I'm not in a hurry to sell it--I like living here, overall--but I'll probably want to sell it someday.

Lexie, that is what they will want to know to see how much they can loan to you. The bank is not going to want to go over the value of the house (once repaired) in total loans. I would definitely talk to a small banker as you seem to be right there.

Good Luck!

I'm not clear on why a small local bank would be motivated to give me a better rate than the bank that holds my mortgage (and all of my other accounts), and that gives me a credit card interest rate that is the lowest I've ever seen anywhere. If I didn't already have such a well-established relationship with my bank, then shopping around would make sense to me. Maybe I'm missing something.

i agree with others - the bank/lender is going to want to know what is in it for them AND can you pay the loan.
think of it like a business plan....
how long will the repairs take?
once the repairs are complete what would be the "estimated" appraised value?
what is the market like in YOUR neighborhood?
what happens if you do NOT get the repairs?
what was the original appraised value, before the foundation issues arose?

Ok so here is what I see - you are in at 153k between both loans. With the cost of the rehab at 60 - 80, that sets you at 213k - 233k in loans. IME unless the house is going to appraise in the 213k - 233k range construction financing is not an option. The lenders prefer a LTV of 80%. 100% LTV loans are out there but the interest rate is much higher. While I certainly understand and agree that the bank has a vested interest in the property a loan that exceeds the value is not in their best interest, and they will have underwriting issues to even attempt it. HELOC is not an option since you already have one and there is no longer equity. There might be loans that exist that are Federal that address this sort of situation - I am not sure I haven't experienced the same scenario. I believe you would be looking at an FHA 203K which will look at the value after improvement but unsure if the value is there.

Your other option since you have stellar credit and high income and the way I would probably go is to use another form of collateral such as retirement, stocks, personal savings etc. You won't be able to write off the interest like you can with your mortgage, but the rates are low and you won't have the added expenditures of closing costs and appraisals etc..

Another option if you have retirement investments in IRA and some 401k is to take out a loan from yourself. You will have to pay a low interest on the loan, and can just pay the interest rate with out repaying the principal.

Certainly worth a trip to your banker as there may be other loan programs which would work. There are so many its impossible to know with out asking.

Market in my neighborhood sucks. All the houses have substantially lost value. Even with the repairs, it's probably worth a little more than half of the purchase price (I bought in 2006, at the height of the housing market. This development is going downhill, to some extent. It's old, and as we've discovered, the construction practices were less than stellar, to put it mildly.

Do you have Title Insurance ?

If you do, you may want to review your foundation issue with them. Maybe it could be considered a fraudulent property based on it having a foundation issue. Particularly if they insure against this type thing.

Just a thought.

Back to the thread subject. If the house now has a designated bad foundation, I don't see a bank touching it. But if the terms of the settlement is no faulty foundation, then I'd try a cash out refinance or maybe a government backed 203K loan. This is a rehab loan for houses that require repairs and owners that don't have the money.

Again, thoughts, no assurances.

I am a retired banker, ruls/laws change from country to country and state to state, if you have equity in your home you can (at least here) get a low interest loan against that equity, simply pay it off when you get your cash, it's basically a line of credit secured by your equity.

Andrew

I was in Real Estate for a lot of years, if it was me - I think I'd go to the bank and show them the numbers and ask them why you shouldn't just walk away from this mortgage? I mean, they can't even short sell it with a known foundation problem and would take a huge loss. You are so far under water that it isn't recoverable. Since you want to stay there, it would be in their best interest to work with you.

Do you know any Real Estate attorneys?

I like the idea of a loan from your 401K. I certainly don't know what I would do.

I was thinking the same thing after learning more details. Given how far your under water I would start exploring my options for getting out and starting over. Makes no sense to spend 80k fixing a house that's only worth 60k. Plus if the area is going down hill like you say its only going to get worse with time.

The problem with walking away is so much for stellar credit.

But if you do consider it, consider this.

Use your stellar credit to buy another place. Close that loan, move into new place, walk from old place. They can't kick you out of your new place as long as you live up to the terms of mortgage. Your credit rating will take a hit, but you'll alteady be in your new place and won't need credit for the next few years anyway.

I actually would rather not move. I like the house (apart from the issues), like my neighbors, etc. I'm guessing that after the repairs the house would be worth in the neighborhood of 120-150--assuming that the repairs are done competently (and I'm going to insist on a transferable warranty). I have an engineer coming out soon to give me a proposal for a remediation plan--once I have that, I'll have a better idea of the cost. I have a couple of estimates already that range between 60 and 80k for the work.

I live in a "recourse" state, which means that walking away would not be a great option--the bank could come after me for the balance, and I would rather not damage my credit unless I would walk away free and clear. I do have investments (403b and IRA), but I'd rather use those as collateral than borrow from them.

I actually will have in savings (after I receive the settlement check) around $30k. That's just savings in an online account. So I really would have to borrow around $40k (I can sock some more money away in the coming months). And actually, I can probably pay it off reasonably quickly, so I may be hurting my head for nothing. I believe I can get a signature loan for a pretty decent rate, but I'm hoping for the best deal I can get. My need for an "emergency fund" is limited, since I receive a pension--I'd have that even if I were to lose my job. I like having one, but it doesn't have a high balance.

I say to work with a small bank just to get the loan b/c of the value issue you will likely run into (see redatlanta's post above). They seem to have a more one on one relationship and be interested in doing things other banks won't, and many times have excellent rates.

Good luck!

I don't like the idea of walking away either but sometimes it's the only option. If you can pay the loan off fast the interest rate won't make much difference in the big picture