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Tony, Home Buyer in Chicago, IL

My girlfriend asked me to go in 50/50 with her on an investment property. We will look for something under

Asked by Tony, Chicago, IL Tue Feb 10, 2009

$175k. I currently have a condo with an 80/20 loan. I will pay the 20% off by Oct 2009 but the 80% (currently $85,000) which is an ARM (highest 12.24% - lowest 6.24%) will adjust in Jan 2010. My credit score is over 720 and she has between a 645 & 685. Would it be wise to refinance that $85,000 or leave it as is and go ahead with the invest property search?

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Tony,

I am going to answer a question that you didnt ask, but I still think you should think about. I am a real estate attorney here in the Chicago area. I just wanted to state that you and your girlfriend should have a discussion soon about how you will want to take title to the new property. There are really two choices for you:

Joint Tenancy - With this form of ownership should one of you die the property will pass to the other regardless of what a will or other documents state.

Tenancy in Common - With this form of ownership should one of you die the property will pass to whoever the legal heirs would be. So if you have no will, and your parents are alive, your interest in the property would pass to them for instance.

I know it is not what you asked, but still worthwhile discussing.

Thanks,

Paul Garver
paul@hg-legal.com
1 vote Thank Flag Link Tue Feb 10, 2009
Tony; My advice would be to try to refinance your condo as soon as possible. Interest rates are 5.25% nowadays and your credit score is fabulous. Get rid of that terrible loan that you have that is going to adjust in 2010. I would do that before I buy. That will help you out to qualify for the new home that you are planning to purchase with your girlfriend since you are going to be reducing your personal payment substantially. Otherwise, your personal loan will almost double in 2010.
1 vote Thank Flag Link Tue Feb 10, 2009
Dear Tony,

I'm not currently a loan originator, but I was in a past life. I would suggest the following.

Pay off the 20% 2nd mortgage first. If you don't want to wait until October because you're concerned that rates may go up again, then do a couple of principal reduction payments on this 2nd mortgage to get it paid off a few months or weeks early.

Concentrate on raising both of your credit scores (yes even further) in the months until you pay off the 2nd mortgage. The best rates in the current environment are reserved for folks with a 740 credit score and above, and the banks score is not always the same as the one that you see for yourself (and the banks scores are often slightly lower). And you may be int he best score position just before your final payment on the 2nd mortgage.

I'd speak with a few potential lenders before you go ahead and select one to work with. I'd suggest pulling your own credit scores first and when you speak with the lenders just tell them your scores and what you'd like to accomplish/pursue with your new purchase loans before having them inquire into your score (and potentially lower it).

I do have a few lenders that I could suggest for you if you're looking for someone to work with. Good luck.

Sincerely,
Christopher Thomas
Broker Associate, Sudler Sotheby's International Realty
773-418-0640 (cell)
christopher.thomas@sothebysrealty.com
http://www.mayagentchris.com
0 votes Thank Flag Link Wed Feb 18, 2009
Tony,

You may have a hard time refinancing with that 2nd loan in place for two reasons. Your second lender must agree subordinate to the first loan (i.e., agree to remain the second lien with less rights). Many second lenders are refusing to do so, especially if the value of your home has gone down. Second, most banks won't refinance you anymore if you leveraged that far. They may agree to refinance a 80/10/10 but not a 80/20. This is really not the banks but the Fannie Mae guidelines that banks must follow.

Good luck, I have provided 70 million in financing since 2002 and would be glad to point you in the right direction.
Web Reference: http://www.1sthomegroup.com
0 votes Thank Flag Link Tue Feb 10, 2009
Good morning Tony,

If you are going to be in your condo for any length of time (over a year) I agree that refinancing is a must. IF you are planning on buying soon than that would be a waste of time, money and effort. Primarily, you need to get your condo listed for sale. Remember that in this market you will need to price it correctly for it to sell. Since you are upgrading, you will more than make up any money lost in the sale by the savings you will gain on your new home. If you contact me with some more information, I would be happy to e-mail you some properties and provide you with a CMA and a marketing plan to get you on you way.
Have a Great Day! Talk to you soon.

Tim
tfitzgerald@c21proteam.com
815-353-1901
0 votes Thank Flag Link Tue Feb 10, 2009
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