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benjamin · Joined: 20 Oct 2009 Posts: 5 2.12 Dollars($)

I have a home I own with a clear title. It seems to me that I should be able to get a simple mortgage but I am being told that I have to get a home equity loan. This is a 2-point difference in interest rate and that offends me. A home equity loan, to me, implies the existance of a first mortgage and an owner wants to leverage some of the equity between the value of the home and the amount of that first mortgage.
Am I being misled or is the law governing the this practice really that acute? I have to actually purchase a new and different home to get a home mortgage and any other situation is forced into the equity loan scenario.

jveenstra · Posted: Tue Oct 20, 2009 10:22 am Post subject: Home Equity

It should be possible to do a first mortgage cash out refinance or a second mortgage cash out refinance. Being told you may "only" do the second mortgage does not sound correct.

It is posible to a second mortgage product without having a first mortgage. It is the "product, not really requiring there be a first mortgage although the name "second mortgage" simply sounds like there should be a second mortgage.

First mortgage products usually have lower rates and more costs.

Second mortgage products often have higher rates and no costs.

Which is most beneficial to you: Depends on your credit score and the size (dollar amount) of the mortgage you want.

It baffles me why someone says you may only do the second mortgage product.

gmakerley · Posted: Tue Oct 20, 2009 10:36 am Post subject:

i'm not getting that either, john, unless benjamin is looking for such a small amount of money that it's not of value to a lender to do so. that would make a modicum of sense, at least. i'm glad you provided all that good information - i wouldn't have been as patient to take the time to write all of that.

as for rates, though, i have seen home equity rates below 5% lately - of course, those are undoubtedly variable, which scare most folk away. but it isn't necessary for someone to pay an exorbitantly high rate for an equity loan, as we know. and of course, with lower upfront costs, it might just be a benefit to use that product.

Posted: Tue Oct 20, 2009 10:57 am Post subject: Home Equity

Good point, George.

Many lenders will not do a first mortgage below $50,000 and sometimes that number is higher.

When a mortgage is less than that, a 2% increase in rate usually is not that bad compared to the costs of a first mortgage--assuming the second mortgage is almost free to get other than the rate.

benjamin · Joined: 20 Oct 2009 Posts: 5 2.12 Dollars($)

My desire is to stay with my current financial institution of Randolph-Brooks FCU. The rate on equity loans is 6.1 and the rate on a first mortgage is 4.3. My credit score is 798. I appreciate the information I just don't know how to approach the lender. It sounds like the first vs equity loan distinction could be lender prerogative.

benjamin · Joined: 20 Oct 2009 Posts: 5 2.12 Dollars($)

I don't know that these details matter but here they are.
I would like $200k in order to payoff my current homestead and make some updates to a new home I added onto with cash. Thus it is a second home (in a different county than my primary) that I will subsequently inhabit.
Does this change the equations in anyway?

gmakerley · Posted: Tue Oct 20, 2009 11:16 am Post subject:

since you're looking for such a large amount of money, they absolutely ought to consider this as a first mortgage (traditional) and offer you the best rate they have. are they a portfolio lender and afraid of losing 2% interest annually? they'd be better off being concerned about treating their good members well. i don't get their position at all on this situation. argue your point again, benjamin. you deserve the first mortgage rate.

benjamin · Joined: 20 Oct 2009 Posts: 5 2.12 Dollars($)

Is the fact that I am in Texas relevant?
I understand the rules/regs can vary by state.

benjamin · Joined: 20 Oct 2009 Posts: 5 2.12 Dollars($)

I got this response from a texas mortgage guy:
Texas law, only allows you to pull the money out of the hime on an equity loan. Rates are relatively the same. Maybe .25 difference depending on the loan size. You will have to pay closing costs, just as with a purchase loan.

But still cannot find anyone who can support the argument with a specific statute. I am a scientist and always weigh a persons response against possible biases as well supporting verifiable references. This seems like a loose statement.

jveenstra · Posted: Tue Oct 20, 2009 1:19 pm Post subject: Refinance

Benjamin, as an aside, you are one of the few people I have ever seen spell "prerogative" correctly as opposed to incorrectly "perogative"

Texas is indeed a unique state when it comes to cash out refinancing. I know the regulations are very different and often prohibitive. I do not know Texas mortgage regulations. I read them all the time, but, do not pay much attention becasue I am not licensed there.
You definitely need some advice from a "Texas mortgage expert"

gmakerley · Posted: Wed Oct 21, 2009 3:28 pm Post subject:

well done, john. it is nice to see someone who can spell - it's such a rarity. i guess that's why the national spelling bee is such a hit on tv - people truly appreciate the effort those young people put out in order to learn to spell.

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